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Full text of "Top management handbook"

UNIVERSITY 
OF FLORIDA 
LIBRARIES 




TOP MANAGEMENT HANDBOOK 



Top Management 

Handbook 



EDITED BY H. B. MAYNARD 

President, Maynard Research Council, Incorporated 
Chairman of the Board, H. B. Maynard and Company, Incorporated 



McGRAW-HILL BOOK COMPANY, INC. 

New York Toronto London i960 



TOP MANAGEMENT HANDBOOK 

Copyright © i960 by the McGraw-Hill Book Company, Inc. Printed 
in the United States of America. All rights reserved. This book, or 
parts thereof, may not be reproduced in any form without permission 
of the publishers. Library of Congress Catalog Card Number: 60-10606 

II 

41085 



'1 



TO TOP MANAGERS 

who, although numerically a very small group, 

by their dedication to sound management practices 

have influenced for the better the lives, happiness, 

and material well-being of all people in every land 



Preface 



During the last half of the twentieth century, management seems destined 
to play a leading role in shaping the technical, economic, and social de- 
velopments that will take place. It is quite generally conceded that man- 
agers, as a group, are among the most important leaders of our times. 
Their decisions, their courage and foresight, the skill with which they 
carry out their responsibilities have a profound effect on the lives, happi- 
ness, and material well-being of all people in every land. 

It is important, therefore, that each manager should do his work well, 
so that it will result in the greatest benefits both to the company that 
employs him and to society in general. Yet if the conscientious manager 
accepts this conclusion as a personal obligation, implied by his title of 
manager, he may often be at a loss to determine, by any objective stand- 
ards or measurements, just how well he is doing and how to improve his 
performance if it is something less than adequate. 

One of the chief difficulties is the fact that the task of managing is itself 
often imperfectly understood. There is a tendency to confuse the per- 
formance of functions such as research and development, marketing, and 
production or the application of management tools and techniques such 
as budgeting, market research, or work measurement with the task of 
managing. Managers at all levels tend to do many things which are not 
managing, either because their position requires them to do so or because 
they do not recognize the distinction between the task of managing and 
the performance of other functional work. 

The starting point for improving methods of managing, therefore, is 
first of all to distinguish clearly the nature of the task of managing. Then 
the manager can strive to perfect himself in performing the several ele- 
ments into which the task of managing may be subdivided. 

This Handbook has been designed to help any manager do just this. It 
begins with a discussion of the nature of management and managing and 
develops certain over-all philosophical concepts of the art and science of 
managing. It then sets forth in some detail each of the elements of man- 
aging. A discussion follows of the management of the several functional 
activity areas from the viewpoints of both the top manager and the man- 
agers of the functional activity areas. The final section deals with a num- 

vii 



Vlll 



PREFACE 



ber of related facets of the top manager's job, presenting both philo- 
sophical concepts and practical ideas for putting them into effect. 

The structure for this integrated approach to the discussion of the task 
of managing has been based on a concept developed by the Association of 
Consulting Management Engineers during an investigation and definition 
of the common body of knowledge which should be possessed by all com- 
petent professional management consultants. The organization of the 
Handbook into appropriate chapters and the selection of qualified authors 
for each of the chapters were accomplished by the Editor-in-chief and his 
staff, greatly aided by an informal advisory committee composed of: 

Harold W. McGraw, Jr., Vice President, McGraw-Hill Book Company 

Lester R. Bittel, Editor-in-chief, Factory 

Sidney D. Kirkpatrick, Chemical Engineering and Chemical Week 

Kenneth Kramer, Managing Editor, Business Week 

Carl E. Nagel, McGraw-Hill Book Company 

Matthew J. Murphy, Factory 

Mead Stone, McGraw-Hill Book Company 

The result is this Handbook. It is called a handbook, and yet it differs 
from the typical handbook because of the very nature of the subject ^vith 
which it deals. A handbook is customarily a how-to-do-it treatment of a 
given area of activity or knowledge. It sets forth commonly accepted 
principles, formulas, and procedures that lead the handbook user to the 
correct solution to his problems. 

But the task of managing is both an art and a science. It is possible to 
identify a number of principles and practices which have been used 
successfully by practical managers, and this the Handbook does. But it 
does not, and cannot, present specific, unchanging formulas for applving 
these principles and practices. Not only are the variables in the situations 
in which managers must manage so numerous as to defy reasonable 
organization and classification, but the act of managing is so personal 
in nature that there is no "one best way" of performing even the simplest 
element of managing to which any substantial number of managers ^vould 
subscribe. Managing is in large part an art, and just as no group of 
painters would agree that there is one way and one way only in ^vhich a 
given subject should be painted on canvas, so the task of managing will 
be carried out in many different ways, depending upon the temperament, 
experience, and personal skills of the manager and the specific environ- 
mental situation in which he works. 

But the manager will find a great deal of help in this Handbook for the 
solution to his own problems. The Handbook brings together in one place 
in a form convenient for reference all the body of knowledge which has 
developed over the years on "the art and science of managing." It con- 



PREFACE IX 

tains an exposition written by sixty different authors, all of whom are 
top managers themselves, of what it is that they do while they are man- 
aging. This in itself is unique. There have been many books written by 
university professors, management consultants, and technical specialists 
telling top managers what they ought to do. There have been few or none 
written by top managers themselves telling what they have found it wise 
to do in the actual managing of their businesses. 

Thus the reader will find an authoritative discussion of each facet of 
the task of managing written from the standpoint of personal experience. 
As he reads of the successes and occasional failures of others, with his own 
problems in the back of his mind, he will find that he will generate dozens 
of ideas of things that he can do to solve his own current problems. The 
ideas may not be the same as the author's, indeed they may not even 
parallel them, but they will be constructive, fresh approaches that are 
stimulated by what the author has said. 

Thus the Handbook can be a practical help to managers at all levels in 
their daily task of managing, which is what a handbook should be. By 
helping each manager improve his methods of managing, it can be an 
important aid in the ever-present problem of management development, 
or perhaps better, management self-development. 

In addition, it can be of value to management students, the young men 
who will be the future managers of business and industry, in obtaining a 
practical orientation to the realities of the business world and in meeting 
intimately, through the pages of the Handbook, a representative cross 
section of successful industrial managers. 

Finally, the Handbook will be of interest in some of its parts, if not in 
its entirety, to the many serious-minded people who are concerned with 
the current social, economic, and ideological problems that so beset the 
world. By learning what the present leaders of industry are thinking and 
doing, they can understand more clearly the nature of the times in which 
they are living. 

The Handbook authors were carefully selected to present a cross section 
of American industrial managers. They include top managers of large, 
medium, and small companies. These managers guide a wide variety of 
industries— extractive, manufacturing, processing, retailing, insurance, and 
service, to mention several. Some of the top managers are comparatively 
young, while others are able to look back upon their experiences from 
the vantage point of retirement. Each of them has a personal message 
to convey, a thoughtful summary of the results of his experiences in the 
area on which he writes. 

Although the manager's job has been broken down into a number of 
subdivisions for discussion purposes, many of the authors have found it 
difficult to confine themselves solely to the subject of their chapters. This 



X PREFACE 

is quite understandable, for the task of managing is more in the nature 
of a continuum than a series of discrete steps. 

Therefore it is suggested that the reader who is interested in a given 
subdivision of a manager's job should read not only the chapter devoted 
to the discussion of that subdivision, but also any references to that sub- 
division which may appear elsewhere in the Handbook, as shown in the 
index. 

This Handbook is the result of many minds thinking about the task of 
managing. To the authors themselves, to those with whom they mav 
have discussed their contributions, and to the many management men 
who directly or indirectly have influenced the thinking of the authors, 
the Editor-in-chief expresses his heartfelt thanks. Without all of them, 
this Handbook, which will have a constructive influence on managers at 
all levels for many years to come, could not have been produced. 

Appreciation is also extended to T. C. Thomsen, President, Corporate 
Public Relations, Inc.; Stanley Sauerhaft, Vice President, Howard Chase 
Associates, Inc.; Leslie Avery, Director of Public Information and Assist- 
ant Vice President of Public Relations, National Association of Manu- 
facturers; Stephen Korsen, Assistant Director of Public Relations, The 
Borden Company; and John Orr, Assistant to the President, National 
Association of Manufacturers. Each has provided invaluable behind-the- 
scenes assistance. 

And for fine assistance in the not inconsiderable editorial work of put- 
ting the Handbook together, special thanks are extended to ^Villiam A. 
Gierl of Maynard Research Council, Inc. 

H. B. Maynard 
Editor-in-chief 



Contents 



Preface H. B. Maynard vii 

Foreword David Rockefeller 1 
PART ONE The Managing Function 

1. Management and Managing H. B. Maynard 8 

2. Management throughout History Curtis H. Gager 35 

3. Evolution of the Manager Earle A. Chiles 74 

4. The Art of Managing Robert C. Hood 91 

5. The Task of Managing H. W. Prentis, Jr. 117 

6. The President's Job Gray L. Carpenter 149 

PART TWO Management by Objectives 

7. EstabHshing Objectives L. A. Petersen 180 

8. Gathering Information Henry Blackstone 200 

9. Synthesizing Information T. R. Moore 231 

10. Planning Carter L. Burgess 247 

11. Deciding Harold F. Smiddy 266 

PART THREE Managing People 

12. Directing the Attainment of Objectives Lansing P. Shield 302 

13. Organizing Hobart C. Ramsey 317 

14. Communicating Fred G. Meyer 336 

15. Motivating Herman W. Steinkraus 350 

16. Directing, Guiding, and Leading Rudolph F. Bannow 362 

PART FOUR Measurement and Control 

17. Evaluating and Measuring Results Norman E. Alexander 374 

18. Top Management's Use of Measurement and Controls Edmund F. Ball 397 

19. Management Controls for Large Business Stanley de J. Osborne 424 

20. Management Controls for Small Business Carter C. Higgins 441 

PART FIVE Managing the Future 

21. Developing People by Informal Methods George H. Coppers 464 

22. Planned Management Development William T. Brady 484 

23. Promoting Innovation Thomas J. Watson, Jr. 508 

PART SIX Activity Area Management 

24. Top Management and Research and Development Donald D. Pascal 522 

25. Managing the Research and Development Activity L. G. Bliss 540 

xi 



Xll CONTENTS 

26. Top Management and Production William R. Adams 558 

27. Managing the Production Activity J. Keith Louden 568 

28. Top Management and the Marketing Activity Edwin R. Broden 590 

29. Managing the Marketing Activity Leslie C. Overlook 615 

30. Top Management's Responsibility for Finance and Control 

Owen R. Cheatham 632 

31. Managing the Finance and Control Activity John P. Richmond 649 

32. Top Management and the Personnel Activity William L. McGrath 685 

33. Managing the Personnel Activity George P. Maginness 706 

34. Top Management and External Relations Stanley C. Hope 719 

35. Managing the External Relations Activity Milton Fairman 745 

36. Top Management and the Legal Activity Robert A. Weaver, Jr. 785 

37. Managing the Secretarial and Legal Activity Joseph A. Gerardi 805 

PART SEVEN Other Aspects of Top Management 

38. Top Management and the Board of Directors Clarence Francis 820 

39. Top Management's Use of the People in the Organization 

Admiral Ben Moreell 835 

40. Building and Retaining a Top Management Team /. Russell Duncan 846 

41. Top Management in Higher Education Dr. Jay F. W. Pearson 871 

42. Top Management's Use of Long-range Planning Donald G. Hardenbrook 887 

43. Managing a Highly Decentralized Organization Willard F. Rockwell, Jr. 904 
•^44. Managing Professional People William T. Snaith 939 

45. Conducting Management Meetings John D. Foskett 948 

46. Top Management's Use of Outside Services Walter J. Bergman 974 

47. Top Management's Use of Operations Research Richard S. Leghorn 1007 

48. Direction and Control of Expansion Gordon H. Smith 1025 

49. Top Management's Stake in the Securities Markets Michael W. McCarthy 1039 

50. The Pressure for Profits Moses Richter 1055 ' 

51. Top Management's Responsibility for the Private Enterprise System 

John C. Bosted 1066 

52. The Influence of Government on Top Management Decisions 

Milton C. Lightner 1079 

53. Top Management's Responsibility for Good Government Arthur B. Langlie 1099 

54. Top Management's Responsibility to the Community Thomas Roy Jones 1114 

55. Business Ethics Charles Kendrick 1144 

56. Top Management's Participation in Management Organizations 

Pierre R. Dupont 1159 

57. Lightening the Executive Load Byron K. Elliott 1177 

58. The Role of the Top Manager's Wife Mrs. Harvey Picker 1195 

59. Top Management's Need for Objectivity Louis E. Newman 1205 

Index 1221 



David Rockefeller 

VICE CHAIRMAN OF THE BOARD 
CHASE MANHATTAN BANK 
NEW YORK, NEW YORK 




As vice chairman of the Chase Manhattan Bank, David Rockefeller 
heads planning and development. One of the biggest plans of all 
created the new Chase Manhattan Building, not only as a home, but 
as a magnet for a billion-dollar redevelopment of lower Manhattan. It 
is significant that the Rockefellers do not own a square foot of the 
precious land which benefits from the project. 

Bringing new methods to banking is Mr. Rockefeller's contribution 
to management. Among the evidences of his leadership in planning are 
long-range blueprints to assure the bank of continued management 
strength in the decades ahead through organization planning and 
management development. He has introduced the customer-oriented 
marketing concept of industry into the bank's operations. The bank's 
economic research and publications program has grown to imposing 
stature, and the bank has produced some of the liveliest advertising in 
the country under his management. 

Under his direction. Chase Manhattan opened branches in Panama, 
Puerto Rico, and Cuba, initiated a business news letter about Latin 
America, and developed an outstanding program of assistance for 
American management in expanding world trade and conducting op- 
erations abroad. 

The preachment of public service which managers so often hear is 
nowhere better practiced. In David Rockefeller's case, it started at the 
beginning. A graduating Rockefeller's job application would no doubt 
have been welcomed anywhere in commerce. But after receiving his 
Ph.D. from Chicago, following Harvard and the London School of Eco- 
nomics, Mr. Rockefeller selected a nonsalaried position as secretary to 
the late Mayor LaGuardia of New York. 

Mr. Rockefeller is vice president of the Rockefeller Brothers Fund, 
chairman of the Rockefeller Institute, and a director of Rockefeller 



Photo by Pach Bros., New York 



Center. Among his corporate board of directors assignments, in addi- 
tion to Chase Manhattan, are B. F. Goodrich and Equitable Life. He is 
a director of the 1^64 New York World's Fair, a member of the Money 
and Credit Commission of the Committee for Economic Development, 
and overseer for Harvard University. He also heads the advisory board 
for the ic)6^ International Management Congress in New York. 

David Rockefeller makes his home at Pocantico Hills near Tarry- 
town, New York, where John D. Rockefeller, his grandfather, estab- 
lished a family residence early in the century. It is not unusual for the 
Rockefeller grounds to be used for the entertainment of visiting 
foreigners in the interest of improved international understanding. 

Sailing near the vacation home in Maine is David Rockefeller's 
favorite recreation. Travel is almost always a mission of some sort, but 
Mrs. Rockefeller and one or more of the six children frequently ac- 
company him on trips to other continents. 

March, i960 



Foreword 



Perhaps the local banker was one of the first management counselors. 
The banker-businessman relationship seems to be one which has not 
changed over the years. Businessmen still talk to bankers with more 
candor and explicitness than is customary outside their offices, and a 
banker's range of executive contacts is often broad. Inevitably, therefore, 
a banker has some thoughts on management and on managers. 

The successful management man, it seems to me, invariably has a 
central sense of mission that is distinctly related to his own organization. 
I speak here of the crusade beyond the common ambitions of gro^vth and 
profit— the individualistic "extra" from which growth and profits do, 
however, proceed. It is, if you will, a creative instinct that uses the 
materials at hand to claim a special place in the field of competition. 

The sense of mission of the management man is the key to his leader- 
ship. The mission is planned and relentlessly pursued in its execution, 
affecting at every stage the basic decisions concerning production, market- 
ing, finance, labor relations, and communications. But in its formative 
stages, it is always in some measure intuitive. One does not hunt for it 
as a scholar seeks a subject for his master's thesis. One does not find it in 
a handbook. One uses the continuing processes of management education 
to perfect one's means of accomplishing the mission. 

2 



FOREWORD ^ 

Few management missions are as obvious and spectacular as the shrink- 
ing of the globe through accelerated transportation or the use of elec- 
tronics to supplement, with immediacy, man's memory of accumulated 
fact. Indeed, the public as a whole need not be conscious of a particular 
mission in order for the management man to use it, subconsciously, as a 
measure of his achievement. 

Top management has an exceedingly complex role, and it is likely 
to become more rather than less so. Time has been relentlessly annoying 
to the management man. In the days of the local banker, the manager 
sat on top of every phase of his business. Today he is still expected to 
behave as though he were close to all operations on a daily basis. Yet 
time has steadily moved him farther from the basic functions by inter- 
jecting layers of administrative departments, by stimulating human needs 
and desires that cause his business to grow new offshoots reaching into 
previously unexplored areas, and by confronting him with new kinds of 
social responsibility in the national and world communities. 

The newer staff functions which have moved between the business 
commander and his lieutenants are scarcely gold-bricking ones. They are 
essentials which must be performed under modern business conditions. 
They also must be managed at the top. To do so, the leader must ac- 
cumulate familiarity with new fields-with operations research, public 
relations, collective bargaining strategy, Washington representation, sci- 
entific development, and others. There is perpetual growth in the number 
of things the leader must know. 

Diversification in product lines, as well as mergers and acquisitions, 
complicates the problem. A rubber company acquires broadcasting sta- 
tions, and a motion picture company enters the soft-goods field. 

The growing economy itself produces worry as well as opportunity: 
how to create legitimate jobs for an exploding population while at the 
same time realizing the savings and efficiencies of ever-advancing ma- 
chinery; how to adjust operations so as to profit from continuous migra- 
tion to urban centers without losing established positions in the rural 
areas. 

In many ways, these are social issues as well as business questions. The 
successful management man can no longer escape taking a position on 
significant problems of human welfare and global affairs. His stock- 
holders, employees, and customers expect him to express his viewpoints. 
Among the important questions which business leaders have been called 
upon to consider in recent years are these: 

1. How can we protect the integrity of the currency? 

2. What shall be our policy on international trade? On economic re- 
lations with Communist countries? 

3. To what extent should business participate in political activity? 



^ FOREWORD 

4. To what extent should businessmen give personal service to Federal 
and local governments? 

5. What productive pursuits can we develop for our retired citizens? 

6. What constructive uses can be made of increasing leisure? 

In 1958 the late Prof. Sumner Slichter wrote that business has a chance 
to regain some of its lost influence in national and international afEairs 
by developing first-class leaders of thought on issues of public policy. 
Said Prof. Slichter: "Many able and accomplished business leaders are 
conventional thinkers. ... A change, however, may be in the making. 
Within the last generation, there has begun to appear a growing number 
of executives of independence and reflection who have been willing to 
discuss problems of policy with freshness and imagination, and their 
influence upon business practices and public policies has been consider- 
able." 

With all of these pressures on the management man, one must respond 
with tremendous admiration for that company about which one's invest- 
ment adviser says: "They have good management." 

Good management is a primary criterion by which a company is judged. 
This often swings the decision as to where one makes an investment, 
accepts a position, supports a legislative objective, or buys a product. It 
frequently determines whether an employee works like the dickens or just 
rides along. 

What makes good management good? How does it get that way? How 

does it stay that way? 

There has been a good deal of attention given to this. In some com- 
panies, the president himself has a formal job description of his duties. 
The American Management Association surveyed 140 corporations usnig 
position guides at the managerial level and found 72 instances in which 
the management man said that the list helped him to understand himself 
better as well as his job. "The process of preparing descriptions and the 
critical thought, discussion, and self-examination that this step entails," 
reads the report, "often has as great a value as the finished description." 
But what seems to be the most efficient way of keeping fit mentally? 
Of training for the next contest with an unscheduled opponent whose 
strategy has not been thoroughly scouted? Of learning new tactics while 
playing the game? 

My grandfather once remarked that "a friendship founded on busmess 
is a good deal better than a business founded on friendship." Business 
friendships "extend the range" of alert managers and are of great im- 
portance in keeping up with developments in an industry and m the 
economy in general. 

The management man can best enlarge his abilities and keep ni shape 



FOREWORD 5 

by tossing problems back and forth with other management men and by 
observing the techniques of his fellows. 

The trouble is, however, that the modern executive's time clock doesn't 
leave him many minutes to spend in such a gym. Nor does the calendar 
give him much time for purposeful reading. It is doubtful, anyway, 
that the business book, no matter how scholarly, ever contains the com- 
plete answer to a precise question at the very time the management man is 
facing the problem. Not unless it is a law book or a compendium of 
regulations where the answer is more an unwavering order than a set of 
challenging alternatives with room for individual imagination and ex- 
pression of personality. 

Management associations have done much to foster opportunities for 
experience sharing. Seminars and short courses at major graduate schools 
as well as symposiums and briefing sessions in metropolitan hotels are 
significant contributions. Among the most rewarding of all are the summer 
conferences at major universities in that they permit a swapping of 
experience in an atmosphere of relaxation and semidetachment. 

But even here a needed facility is missing. The discussion can seldom 
occur when the management man's own problem is fresh. Questions 
usually arise at the office. It is not always possible to reach management 
acquaintances who have had successful experiences in handling similar 
questions. Even when this is possible, the friends may not be located in 
the city; letters are too slow; phone calls are too confining. Even when 
the right executives are neighbors, an informal chat at the club will have 
too many interruptions, and a golf game will involve too much con- 
centration on the score. 

This Handbook recognizes these factors. It allows the manager to re- 
view problems which will confront him by listening— without interruption 
—to one who has had seasoned experience and a record of achievement 
in the proper area. 

The management man is not accustomed to getting solutions out of 
handbooks. This is the formula route, he reasons, that can only lead to 
an average of mediocrity. I doubt that he will have any such embarrass- 
ment about this handbook. 

There are two kinds of handbooks. In the more prevalent image of 
the term, we find what might be regarded as a "talking down" approach. 
Here the focus is on "how to" or "why don't you," and the author 
sometimes makes one wonder whether he can do what he recommends or 
whether he is just expert at making suggestions. The other type of hand- 
book—and this is one of them— focuses on the advancement of an art or 
a skill that is assumed to be already present in the reader. Further, it 
deals not with rules and maxims as seen through one pair of eyes, but 



6 FOREWORD 

rather assembles the practical experience of those who have done the 
things they write about under realistic and competitive conditions. 

There is no longer a public problem that is not also a business problem. 
Further, there are few public problems which do not hinge in great 
measure on the actions of American business. 

On the domestic scene, it is business which must supply jobs and finan- 
cial sustenance for an increasing number of families. It is business which 
must help maintain industrial peace. It is business which must meet 
a rising level of human needs through our natural resources and, at the 
same time, conserve the resources. Business is a key determinant of real 
estate values. Business is the major hope for fuller use of the products of 
agriculture. Business often acts as a generator of creative work in science, 
art, literature. Business has an important role in the fields of public 
health, education, urban redevelopment, and national security. 

In addition, American business must look increasingly outward at what 
our country is facing on the evolving and rapidly shifting international 
scene. We must take the steps necessary to remain competitive in world 
markets. We must be alert to opportunities to expand our trade and to 
increase our investment. We must be willing to make individual adjust- 
ments, difficult though they may be in specific cases, wherever they are 
necessary to encourage trade and economic progress. And we must be 
prepared to work more closely with our government in developing and 
putting into effective operation new approaches to the international prob- 
lems we face. 

More than anything else, the position of the United States in world 
affairs is dependent upon the sustained stability of our economy. The 
economy, in turn, is dependent upon the progress of American business. 
And the performance of American business is dependent upon the caliber 
of its top management. 

It is reassuring that our business leaders are interested in improving 
that caliber and have evidenced this interest by sharing knowledge, so 
that the level of achievement may be continually higher. 

This Handbook is a substantial contribution in this behalf. 



PART ONE 

The Managing Function 




Dr. H. B. Maynard 



EDITOR-IN-CHIEF, TOP MANAGEMENT HANTDBOOK 
PFIESIDENT, MAYNARD RESEARCH COUNCIL, 
INCORPORATED. CHAIRMAN OF THE BOARD, 
H. B. MAYNARD AND COMPANY, INCORPORATED, 
PITTSBURGH, PENNSYLVANIA 



A Word from McGraw-Hill Book Company 
When the concept of the Top Management Handbook progressed be- 
yond the stage of mere idea toward reality— a book that would reflect 
truly the thinking of many leading managers of our time, the small 
company leader as well as the large, the younger chief executive, and 
the senior chief executive— we were faced with a problem of some 
dimension. 

Who could, and who would, serve as its editor-in-chief^ What busi- 
ness leader could do the massive planning, outlining, and coordinating 
job necessary, and who would accept a challenging assigninent that 
would take an estimated three years to bring to fruition? 

We found our editor in Dr. H. B. Maynard, successful president of 
Maynard Research Council, Incorporated, and chairman of H. B. 
Maynard and Company, Incorporated, a man whom we knew as long 
dedicated to the art and science of management. 

His name is not strange or new to the publishing world. He has, in 
fact, written five McGraw-Hill textbooks and 7nore than 200 published 
papers on management research, and he is a writer much sought after 
by many of our leading management periodicals. He is also editor-in- 
chief of our Industrial Engineering Handbook, which was published 
in ic)^6. 

Why, then, did we also select him to be editor of our Top Manage- 
ment Handbook? 

Although an engineer by profession, he has long excelled in virtually 
every area of managing. As a business leader, he heads one of the best- 
thought-of management firms in the world; he has done outstanding 
and original management work in such diverse areas as administrative 



Photo by Jonas Studio, Pittsburgh 



and clerical control, maintenance and engineering, and in education 
and executive development. He is also creator of the term "methods 
engineering" and is one of the originators of methods-time measure- 
ment, the first system of predetermined time standards to be fully 
published (McGraw-Hill, i^^8). 

Dr. Lillian M. Gilbreth has called him "the leading management 
scientist of our time." Certainly he has received most of the manage- 
ment laurels and awards a man can achieve. These include the Mel- 
ville Medal, the Gilbreth Medal, the Wallace Clark Award, and many 
others. He has also been named the Henry Robinson Towne Lecturer 
and is past president of Comite International de V Organisation Scien- 
tifique (the International Scientific Management Society, Geneva, 
Switzerland), and he was presiding officer of the loth International 
Management Congress, Sao Paulo, Brazil, 19^4. Only last year, he was 
named a fellow of the International Academy of Management, becom- 
ing the fourth American to be so honored. 

The professional management societies in which he is an active 
participant are legion: American Society of Mechanical Engineers, 
Society for Advancement of Management (national president, 1^46- 
i94y). National Association of Manufacturers, American Management 
Association, and on and on. 

This year the Association of Consulting Management Engineers, the 
professional management society which represents the major consulting 
firms in this country, named him its national president. And so 
recognition for leadership has come to him from an organization of 
associate firms in his own profession. 

In short, here is a man who has devoted his life to the furtherance 
of better management in his times. He has written his name in bold 
letters on the management thinking of yesterday, today, and on the 
future as well. And he has left legacies in management research which 
will be long used. 

We are happy to present him as editor of this Top Management 
Handbook. 

The Publishers 
ip6o 



CHAPTER 1 

Management and Managing 



Managing is perhaps the most important kind of work that is done in any 
organized human activity. The effectiveness of a group of people in ac- 
complishing its desired goals is directly proportional to the effectiveness 
with which the group is managed. Although the task of managing is per- 
formed consciously or unconsciously, well or poorly, in every group situa- 
tion, the nature of managing is but imperfectly understood by large 
numbers of people who are required by the circumstances of their posi- 
tions to manage. This is partly because managing is a fairly complex task 
and partly because of the semantic difficulties which abound in the field 
of management. 

It will be the purpose of this chapter to describe briefly the task of 
managing and to define some of the more important terms which will be 
used throughout this Handbook. The picture of the task of managing 
which follows was developed by the Association of Consulting Manage- 
ment Engineers.! It provides a logical structure for the entire Handbook. 

The Task of Managing 

Managing is a separate and distinct activity, quite different from the 
various functional activities and the techniques and procedures which 
are generally considered as belonging to the field of management. It is 
the work which the manager does as he seeks to get results through 
other people. Managing is done at any organizational level where one 
man must guide and direct the activities of others. The chief executive 
manages the entire enterprise. The head of a functional activity such as 
marketing manages that activity. The leader of a group working on a 
specific project manages the group. The people at the top of an organiza- 
tion manage a larger area and usually have greater responsibilities 
than the managers further down the line, and they devote more of their 
time to the work of managing. But everyone who seeks to get results 

1 Association of Consulting Management Engineers, Subcommittee on the Constituent 
Elements of Management, H. B. Maynard, Chairman, Dwight Dernier, C. S. Petrasch. 
Jr., J. Alex Smith, William R. Swett, and Robert N. White, Commoti Body of Knowl- 
edge Required by Professional Management Consultants, New York, 1958. 

10 



MANAGEMENT AND MANAGING 11 

through other people must use what will be called the eleven elements 
o£ managing during the time in which he performs his managing 
work. 

The noun "management" is not to be confused with the verb "to 
manage." The term management has many meanings. It is used as a 
collective noun to include all people within a given organization who 
manage, as when reference is made to the "management of a manufactur- 
ing company." It is used to describe a special kind of activity, as when we 
speak of "scientific management." It has come to be thought of as a 
class of people when we treat management and labor as two different and 
often opposed groups. The term is often used to include both those who 
manage and those who aid managers in a staff capacity, such as industrial 
engineers, cost accountants, and personnel men. It is perhaps proper 
to consider that these functional specialists are members of the manage- 
ment team, but when they are making time studies, preparing budgets, or 
interviewing prospective employees, they are doing technical or pro- 
cedural work which helps managers to manage effectively, but they 
are not managing. 

Some Definitions. The following definitions give the meanings of certain 
key terms which will be used in this chapter and throughout the Hand- 
book. 

Activity Area: A group of specialized management functions which, 
because of common objectives, common skill requirements, or merely 
tradition, are usually directed by a member of top management with 
specialized knowledge of, and experience and training in, that particular 
area. 

Element of Managing: A subdivision of the task of managing, the per- 
formance of which can be readily recognized by the manager as he does it 
and which, when neglected or handled unskillfully, will noticeably lower 
the effectiveness of the managing job that is done. 

Function: A more or less arbitrary subdivision of the total activity 
area, which, when the size or nature of the business justifies it, can best 
be performed by a specialist. 

Major Functional Element: An important component, responsibility, 
or duty of a subfunction. 

Manage: To plan, guide, direct, and control the activities of other 
people in order to achieve desired goals. 

Management: The people who perform the task of managing at all 
levels of the organization. 

Procedure: A simple systematic way of accomplishing an objective 
which is usually applicable only in the situation for which it was de- 
signed. 

Subfunction: A more or less arbitrary subdivision of a function. 



12 THE MANAGING FUNCTION 

Technique: A technical method of carrying out a given management 
objective which has a body of specialized knowledge behind it and which 
can be and is applied in a variety of environmental situations. 

Tool, Management: A technique or procedure usually requiring special 
training or skill for effective application. 

Top Management: The chief executive and his staff, usually the man- 
agers of the major activity areas. 



RELATIONSHIP BETWEEN MANAGING 
AND FUNCTIONAL ACTIVITIES 

The chart shown in Figure i-i was developed by the Association of 
Consulting Management Engineers in 1958 to show the relationship 
between: 

1. The specialized functional activities which are components of the 
field of management 

2. The elements of managing performed by any manager of functions 
and people 

It was prepared to show this relationship for a typical manufacturing 
enterprise, but the ideas it depicts are applicable to any form of group 
effort. 

The specialized functional activities are shown vertically on the chart. 
They are grouped first into activity areas and then are shown as breaking 
down into functions and subfunctions. Under each subfunction, the 
techniques and procedures required to carry out the subfunction are 
portrayed. The chart is incomplete in that the total number of functions 
and subfunctions which appear on later charts are not shown for reasons 
of convenience. Its intent is only to show the relationship that exists 
between specialized functional activities and the elements of managing. 

The elements of managing are represented on the chart by the hori- 
zontal shaded bars which cut across the vertical technique and procedure 
bars. This is to portray the fact that managing is a separate and distinct 
kind of work which differs from specialized functional activity. It is 
necessary for the effective accomplishment of the functional activity, but 
the performance of the functional activity alone is not the task of man- 
aging. 

A specific example may help to clarify this concept. One of the activity 
areas shown on the chart is production. This consists in making the 
product or performing the service offered for sale by the company. The 
production activity area will presently be broken down, more or less 
arbitrarily, into six major functions. One of these is industrial engi- 
neering. 

The function of industrial engineering will in turn be broken down 




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13 



14 THE MANAGING FUNCTION 

into five subfunctions, of which work measurement is one. One of the 
techniques by which work measurement is accomplished is time study. 
By substituting these specific names for function, subfunction, and 
technique on the chart, the picture conveyed may be more readily 
understood. 

It is customary to think of the time-study engineer as part of the 
management team. Certainly he helps the manager to control costs as the 
result of his time-study work. But when the time-study man is making 
a time study, he is not managing. He is merely performing a specialized 
technical service for the manager. 

Managing occurs when the activities of the time-study engineer are 
planned, directed, guided, and controlled. The managing may be done by 
the chief executive, the manager of the production activity area, the 
chief industrial engineer, the time-study supervisor, or even by the time- 
study engineer himself. But the task of managing, regardless of by whom 
it is performed, is quite different from the actual making of the time 
study. 

From this discussion, it may be seen that managing may take place at 
any level in the company. One of the problems of organization is to 
see that the responsibility for managing is specifically assigned at the 
level at which it may be most effectively carried out and that the needed 
authority for accomplishing it is provided. As the chart shows, top 
managers spend more of their time managing and manage a bigger area 
than those further down the line. They also have the responsibility for 
coordinating the work of several activity areas or functions, which is 
implied rather than shown by the chart. But managing at any level is 
accomplished by using the elements of managing. These will be discussed 
in more detail presently. 

The Functional Activity Areas 

All the functional work required for the successful accomplishment of 
any task may be grouped into a relatively few activity areas. As the 
definition of activity area implies, this grouping is somewhat arbitrary. 
being influenced by the objectives of the functions, the skills required to 
manage them, and to a certain extent past tradition. 

The activity areas found in the typical manufacturing enterprise 
are as follows: 

Name Purpose 

1. Research and Development To discover and apply the processes, opera- 
tions, and techniques of science and tech- 
nology to create products, processes, and 
services which may benefit an enterprise. 



MANAGEMENT AND MANAGING 

Name 
2. Production 



3. Marketing 

4. Finance and Control 

5. Personnel 

6. External Relations 

7. Secretarial and Legal 



15 

Purpose 

To develop the most economical methods 
and plans for manufacturing authorized 
products; to coordinate the required man- 
power; to secure and coordinate materials, 
facilities, tools, and utilities; to produce prod- 
ucts; and to consign them to the marketing 
activity or the customer. 

To direct and encourage the flow of goods 
from producer to consumer or user. 
To plan, direct, and measure the results of 
company monetary operations. 
To develop and administer policies and pro- 
grams for providing an effective organization 
structure, qualified employees, equitable 
treatment, advancement opportunities, job 
satisfaction, and adequate job security. 
To plan, execute, and coordinate relation- 
ships of company representatives with all or 
selected elements of the public in order to 
achieve acceptance of the company, its ob- 
jectives, and its conduct. 

To perform or cause to be performed such 
duties as are required by law or bylaws of the 
corporation and to appraise and advise the 
company on all phases of its operations and 
relations from a legal viewpoint. 



Research and Development 

Production 

Marketing 

Finance and Control 



In simpler language it may be said that: 

is designing the product. 

is making the product. 

is selling the product. 

is handling financial matters and 
controlling costs and profitability. 

is providing people and a favorable 
internal atmosphere. 

is providing a favorable external at- 
mosphere. 

is providing compliance with the 
law. 



5. Personnel 



6. External Relations 



7. Secretarial and Legal 



The first four activity areas are basic to getting the work done, while 
the last three influence the climate in which the work is done. The 
symbolism used on the chart (Figure 1-1) portrays this. 

The activity areas as just described are defined in terms of the typical 



16 



THE MANAGING FUNCTION 



manufacturing enterprise. With slight wording changes, they can be 
made to apply to other kinds of enterprise as well. For example, if the 
word "product" in the simplified list is changed to "service," the list 
applies to insurance companies, consulting-engineering firms, public 
accountants, and other groups whose product is primarily a service. The 
elimination of the word "profitability" adapts the list to most nonprofit 
enterprises. Similarly with minor changes, the activity areas as listed 
can be made to apply to banks, wholesalers and retailers, hotels, govern- 
ment, in short, to any form of organized group effort. Thus, although 
to avoid repetition and confusion, this Handbook will often discuss 
the problems of managing manufacturing industry, it should be recog- 
nized that the general principles which are advanced are for the most 
part applicable to any kind of enterprise. Indeed, many of the authors 
themselves manage nonmanufacturing enterprises such as supermarkets, 
insurance and investment companies, and professional firms. 

Activity Area Charts 

Activity area charts for each of the seven activity areas are shown by 
Figures 1-2 to 1-8. Each chart shows the functions and subfunctions 
which will be found in the typical manufacturing industry. By this 



ACTIVITY 
AREA 



FUNCTIONS 




BASIC 
RESEARCH 



SUBFUNCTIONS <^ 



APPLIED 
RESEARCH 



RESEARCH 

AND 

DEVELOPMENT 



DEVELOPMENT 



ADVANCED 
DEVELOPMENT 



NEW PRODUCT 
DEVELOPMENT 
AND PRODUCT 
IMPROVEMENT 



NEW PROCESS 
DEVELOPMENT 
AND PROCESS 
IMPROVEMENT 



PRODUCT 

REDEVELOPMENT 

FOR COST 

REDUCTION 



PRODUCT 
ENGINEERING 



PRODUCT 
DESIGN 



ENGINEERING 
TEST 



FACTORY 
FOLLOW-UP 



SALES 
ASSISTANCE 



Fig. 1-2. Research and development activity area. 




38 



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ACTIVITY 
AREA 



FINANCE 

AND 
CONTROL 



FUNCTIONS 



FINANCE 



CONTROL 



SUBFUNCTIONS < 



FINANCIAL 
PLANNING 



TAX 
MANAGEMENT 



FINANCIAL 
RELATIONS 



CUSTODY 

OF 

FUNDS 



CREDIT 

AND 

COLLECTIONS 



INSURANCE 



GENERAL 
ACCOUNTING 



COST 
ACCOUNTING 



PLANNING 

AND 
BUDGETING 



INTERNAL 
AUDITING 



SYSTEMS 

AND 

PROCEDURES 



Fig. 1-5. Finance and control activity area. 



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AREA \ 


EXTERNAL 
RELATIONS 








1 




1 1 


FUNCTIONS < 


COMMUNICATIONS 

AND 

INFORMATION 




PUBLIC 

ACTIVITIES 

CO-ORDINATION 




1 




1 








/ 


ATTITUDE 

AND _ 
OPINION 
APPRAISAL 




CIVIC 
AFFAIRS — 
PARTICIPATION 












EMPLOYEE 
INFORMATION — 
EXCHANGES 




ASSOCIATION 

AND _ 
SOCIETY 
RELATIONS 


SUBFUNCTIONS < 










CREDITOR 
AND INVESTOR — 
COMMUNICATIONS 


• 








N 


PUBLIC _ 
COMMUNICATIONS 




Fig. 1-7. External r 


elations activity area. 


';■ 


ACTIVITY } 
AREA S 


SECRETARIAL 

AND 

LEGAL 


' 


N 




1 




1 




1 


FUNCTIONS < 


SECRETARIAL 




LEGAL 




1 




1 












STOCKHOLDER . 
AFFAIRS 


- 


CORPORATE _ 
AFFAIRS 












BOARD OF 

DIRECTOR 

AFFAIRS 


- 


EMPLOYEE _ 
AFFAIRS 


SUBFUNCTIONS < 








CORPORATE 
AFFAIRS 


- 


FINANCIAL _ 
AFFAIRS 














PATENT _ 
AFFAIRS 



Fig. 1-8. Secretarial and legal activity area. 



21 



22 

THE MANAGING FUNCTION 

means, a further explanation of the nature of each activity area is 
achieved. 

The charts are designed to present a logical structure for the studv 
and discussion of functional management activities. Thev are not in- 
tended to be organization charts. The fact that superficiallv thev 
resemble organization charts must not be permitted to cause confusion 
about what they actually are, namely, merely graphic presentations, 
m a convenient form, of the component parts which make up the several 
activity areas. 

Furthermore, it must be recognized that functions and subfunctions 
are more or less arbitrary subdivisions of larger areas. These areas 
could be subdivided in many other ways and should be in specific cases 
where they do not apply well in their present form. As thev stand ho.v-- 
ever, they serve the purpose for which they are intended! and it will 
not be particularly profitable to dwell upon other arrangements that 
might better fit a somewhat different concept of "a typical manufac- 
turing enterprise." 

As a matter of fact, it is fairly easy to adapt these charts to a specific 
enterprise if it is desired to do so. ^Purchasing," for example, is sho.vn 
as a function on the production activity area chart (Figure 1-3). This 
IS where it is often found organizationally in the typical manufacturing 
enterprise. But the function of purchasing is not equally important in 
all enterprises. In a service business composed largely of ^vhite-collar 
workers doing office work, the purchasing of the needed forms and office 
supplies might be delegated on a part-time basis to a clerk reporting 
to the office manager. On the other hand, one might find the presidem 
of a small textile enterprise doing the purchasing himself. Here com- 
modity costs such as the cost of cotton or wool are such an important part 
of total costs that wise or unwise purchasing can make or break the 
company. 

Therefore, if it is desired to redraw the activity area charts to sho^s- 
the relative importance assigned to any activity in a specific enterprise, it 
can be done without difficulty. The important point to recognize, as 
always, however, is that the performance of a function is not part of the 
task of managing, even when it is performed by the chief executive. 

THE MANAGING PROCESS 

The process by which a manager accomplishes results through others 
may be described as a simple three-step process, as follows: 

1. Establish objectives. 

2. Direct the attainment of objectives. 

3. Measure results. 



23 

MANAGEMENT AND MANAGING 

The manager must first determine what he wishes to have done. 
Then he must organize his people and direct them so that they do tt^ 
Finally, he must measure the results to determine how well hts or.gtn 1 
.oals were achieved. Often this measurement, or evaluation step, results 
fn the establishing o£ new objectives. These in turn he seeks o attam by 
proper direction o£ others. In due course, he measures wl at has been 
Lcomplished. which again leads to the establishing o£ sttl tather ob^ 
jectives. Thus the managing process is a continuous repetition o£ the 
three steps. It goes on and on and is never finished. 




Fio. 1-9. Elements of managing. 

The managing process is symbolized graphically by the accompanying 
chart (Figure 1-9). The process is shown as a circular or contintious 
process by the rim o£ a wheel. Inside the rim are nine e ements of 
managing placed by the step of the managing process that they assist. 
All of them are activated by two additional elements of managing repre- 
sented by the two inner gears which keep the process of managing going. 

The eleven elements of managing, the first nine listed in the chrono- 
logical order in which they are usually carried out, are as follows: 
1. Gather information. 



24 

THE MANAGING FUNCTION 

2. Synthesize information. 

3. Plan. 

4. Decide. 

5. Organize. 

6. Communicate. 

7. Motivate. 

8. Direct, guide, or counsel. 

9. Measure, evaluate, and control. 

10. Develop people. 

11. Promote innovation. 

There are, of course, other actions which might be listed which are 
taken by the manager as he manages. For instance, he must delegate 
and often must coordinate. Rather than extend the list unduh, how- 
ever, thus complicating the concept of managing, it will be better to 
recognize that these and similar actions are implied in the eleven ele- 
ments listed. One cannot very well organize people, tell them what is 
to be done, and motivate them to do it without delegating. Similarly, co- 
ordinating often occurs both in the planning stage and in the active 
direction of the work. Thus the list of eleven elements of managing 
provides a logical and sufficiently complete inventory of the most im- 
portant things a manager does while managing, to provide the basis for 
a clear discussion of the managing process. 

Establishing Objectives 

Every manager must have in mind certain definite objectives that he 
wishes to have carried out if he is to manage effectively. The more 
clearly and realistically objectives are established, the more likelihood 
there is that they will be attained. On the other hand, if the objectives 
are based on wishful thinking, as is all too often the case, their realiza- 
tion may or may not be possible. 

The first four elements of managing describe the rational method of 
establishing objectives. The first element is "gather information." A 
clear understanding of the existing situation is essential before future 
goals can be realistically determined. To establish a profit objective of 
"10 per cent on sales volume after taxes" may or may not be realistic. If 
the company has shown increasing losses for the past three years and 
no steps have been taken to eliminate the causes, a goal of 10 per cent 
after taxes is probably just an unrealizable dream. If the company has 
consistently earned profits of 10 per cent after taxes, there mav be a 
better chance of earning them again in the coming year, but the manager 
cannot be sure until he considers the possible effects of such things as 
probable swings of the economic cycle, the anticipated actions of "com- 
petitors, or the likelihood of continuing satisfactory labor relations. 



MANAGEMENT AND MANAGING ^^ 

The manager must therefore constantly seek to keep himself fully 
informed by gathering all sorts of information from every likely source. 
Information is gained informally and nearly continuously by talking 
with people, questioning them and listening to what they have to say, 
and by reading anything likely to contribute useful information such as 
reports, mail, business publications, and the like. More formally, infor- 
mation may be obtained by making thorough investigations during which 
all available data applying to the situation being studied are obtained. 
But in any case, the gathering of information is a necessary first step 
in establishing realistic goals. 

The second element of managing, "synthesize information," is the next 
necessary step. It is seldom possible to get complete information on 
any situation of even moderate complexity. The manager will often find 
that he is trying to fit together a jigsaw puzzle which has some of the 
pieces missing. In spite of this, he must form an opinion of what the 
picture would look like if he had all the pieces, and he must do it 
quickly and decisively. He does it by studying all the pieces that he 
has at hand and by filling in the gaps from his own experience, educa- 
tional background, and imagination. 

When a good understanding has been obtained of the existing situation 
and probable future influences by gathering and synthesizing information, 
it is necessary to "plan" what should next be done. During this phase, 
the manager will begin to establish tentative objectives in his mind. 
Then he will consider various alternative courses of action by which 
the objectives might be reached. This planning, in turn, may cause him 
to revise his tentative objectives as he finds them to be too difficult or too 
easy to attain. 

Planning may be a mental process occurring wholly in the mind of the 
individual manager, or it may be a full-fledged study participated in by 
many people. Short-range planning is likely to be done by the manager 
alone, although there are, of course, numerous exceptions. Long-range 
planning is more likely to be done by group action. Often outside con- 
sultants are brought in to ensure objectivity of viewpoint. When the 
planning is completed, it is presented in the form of a formal report 
setting forth the information on which the planning was based, the alter- 
native plans that were considered, and usually the course of action that 
is recommended. 

When the manager does the planning himself, a good deal of personal 
skill is necessary if he is to plan effectively. He must be able to establish 
tentative objectives that are reasonably attainable if he is not to waste 
time striving for the unattainable. He must be able to think of more 
than one way by which an objective could be reached if he is ultimately 
to develop the best course of action. He must be flexible enough to see 



26 THE MANAGING FUNCTION 

all sides of a situation and yet decisive enough to choose one plan from 
all the possible alternatives without undue delay and hesitation. This 
brings us to the fourth element of managing, namely, the ability to 
"decide." 

The stereotype of a top manager is that he must be a decisive man, 
able to make up his mind quickly. This is only partly true. If a man is 
prone to making decisions before he has gathered all available informa- 
tion, before he has synthesized it, considered tentative objectives, and 
planned various ways in which they may be achieved, his decisions will 
be quick but they may not be good. Too often they represent "snap 
judgment." 

On the other hand, if the preliminary steps are taken carefully, the 
facts often lead to the correct decision. Although top management can 
never escape the responsibility for decision making, decisions are made 
easy by careful fact finding, analysis, and synthesis. Operations research 
techniques are often referred to as decision-making techniques. Actuallv, 
they are more correctly techniques which permit the manipulation and 
presentation of obscure data in such a way that the story they have to tell 
becomes clear. Thus they help the manager reach a correct decision 
more readily than if the techniques were not available. But it is the 
manager who makes the final decision, not the techniques. 

The establishing of objectives requires a good deal of clear, careful 
thinking if it is to be done properly. It is thinking which is necessary 
and valuable, however, for it makes effective managing possible. Bv 
establishing objectives, the manager determines what is to be done and 
often concurrently when to do it. 

Directing the Attainment of Objectives 

The manager accomplishes the second step of the three-step managing 
process by the use of managing elements 5 to 8. The first of these elements 
is "organize." With a few exceptions, the manager ^vill not expect to 
attain the established objectives by himself, but will expect to reach 
them through the efforts of others. His first step after an objective has 
been established, therefore, must be to organize for its accomplishment. 
To do this, he assigns the people and facilities needed to attain the 
objective. He establishes the duties and responsibilities of each person 
involved in the project, delegates the authority needed to carrv out the 
assigned responsibilities, and establishes reporting relationships, or the 
chain of command. 

All this may be done quite informally, if the objective is minor and 
fairly easy to attain. The manager may merely decide to whom he ^vill 
assign the project and who if anyone will help him. If no expenditure 
is required other than the time of the people involved, this may complete 



27 

MANAGEMENT AND MANAGING 

the organizini^ step. On the other hand, a major project such as the 
opening of a branch plant will require much more formal and thorough 
organization. An organization manual may be written, and an organiza- 
tion chart drawn up. The funds and other facilities needed to accomplish 
the objective must be earmarked from the company's resources. 

Where the organizing task is major, the manager may seek help in 
planning it from a staff function or an outside consultant. Basically, 
however, it is his responsibility to organize any project so that the 
objectives he has established will be attained. If he does not do it either 
it will be done by someone else less fully informed of what is wanted, 
and hence less effectively done, or it will not be done at all. In either 
case, the manager will not be managing, for it is his responsibility to 
decide to ho is to do each phase of the necessary work. 

Once the organization has been decided upon, the manager must com- 
municate his plans and wishes to the people who will be involved in 
carrying out the project. This requires element 6, "communicate." The 
manager tells his people what he wishes them to do. He explains the 
ultimate objective and what he expects each person to accomplish 
toward its realization. He checks to make sure that everyone under- 
stands the particular duties and responsibilities which have been assigned 

to him. 

To do this requires clear thinking on the part of the manager himself. 
He must know exactly what he wishes each man to do before he can 
make his wishes known. A great deal of wasted effort is caused when a 
man does not clearly understand what his superior wishes him to do. 
He may work willingly and hard and may accomplish a certain result 
quite competently, but if that result is not what the manager wanted, 
his good work will be in vain. In situations of this kind, the fault clearly 
lies with the manager, although often it is the subordinate who gets the 

blame. 

To attain the established objective in a reasonable time and at a 
reasonable cost, the manager must do more than communicate clearly. 
He must inspire his people to want to achieve the desired results. There- 
fore he must employ element 7, "motivate." This calls for explaining 
the ivhy of the project in terms of the interests of the individual or 
group. Considerable skill in handling people is required to do this 
properly. The manager must know his people and know what motivates 
them most strongly. Individuals respond to different stimuli. Some are 
strongly motivated by financial rewards, others will work harder to win 
praise or prestige than they will for money, while still others will be 
more stimulated by the newness or worthwhileness of the project than 

anything else. 

Groups of people will often be inspired by causes such as the mundane 



28 THE MANAGING FUNCTION 

one of making this year's profits higher than last year's, the competitive 
cause of beating a rival, or the more lofty cause of providing a higher- 
quality service better to meet the needs of the customers or even the 
country. The skillful manager recognizes these things and tries to present 
the reasons for working on the project in terms which will identify the 
success of the project with the interests of the individual or of the 
group. 

Finally, the manager must employ element 8, "direct, guide, or 
counsel." A man may understand clearly what is to be done; he may 
agree wholeheartedly on why it should be done; but if he does not know 
how to do it, he will not be as effective as he should be. The manager, 
therefore, must be sure that his people know how to achieve the results 
he desires. This is accomplished through giving suggestions, orders, or 
additional data or by teaching them how the objectives can be accom- 
plished. 

The manager must use considerable restraint in using element 8, par- 
ticularly if he is a top manager dealing with high-grade, competent 
people. If he insists on directing every detail of the work himself, dotting 
every "i" and crossing every "t," he will gradually sap the initiative of 
his people or cause them to become disinterested and leave, or both. 
At the same time, he cannot be too reticent. If a man is obviously 
floundering or if he has gone off on an irrelevant tangent, the manager 
must direct, guide, or counsel. Otherwise the objective will not be ac- 
complished. 

Elements 5 to 8 may be considered to be the active part of managing. 
They are the elements the manager is most conscious of performing and 
those that an observer of his activities can most readily recognize. They 
are employed in order to attain the objectives which were established 
by the use of elements 1 to 4. 

Measuring Results 

Element 9, "measure, evaluate, and control," is necessary if the man- 
ager is to be able to determine how effectively his plans are being 
carried out and, in a broader sense, how effectively he is managing. The 
measurement of success in the over-all managing of a company is by 
no means easy. There are many criteria which may be used, and each 
of these will appeal differently to different people. In the eyes of the 
stockholders, for example, the amount and continuity of dividends will 
probably be the most acceptable measure of success. In the eyes of the 
employees, however, the success of the manager is more likely to be 
evaluated in terms of such things as stability of employment, favorable 
working conditions, and pension provisions. Customers are more likely 



MANAGEMENT AND MANAGING 29 

to judge success on the basis of quality of products or service rendered, 
price, delivery, and technological contributions. And the manager him- 
self may judge success on a great variety of things, including rate of 
growth of the company, its acceptance by the community, the morale 
of his organization, earnings— either corporate, personal, or both— con- 
tribution to the economy of the country, or merely the satisfaction he gets 
from doing his job. 

Even the success of a specific and rather minor project is not always 
easy to determine. At the outset, if objectives have been carefully estab- 
lished, the measuring of their attainment may seem quite simple. It is 
anticipated that at the end of the project the final results obtained can 
be compared with the goals which were established in the beginning, 
thus getting a clean-cut measurement of what was accomplished. It is 
seldom this simple, however. Perhaps it was necessary to revise the goals 
during the course of the project as conditions changed. The figures 
produced by the accounting function may or may not seem to be accurate 
or complete and are always subject to different interpretations. Often 
no objective measurements are available. Intangible factors have to be 
assessed by subjective judgment, often resulting in a variety of evalua- 
tions. 

In spite of these very real difficulties, however, the element of "measure, 
evaluate, and control" is very important to the task of managing. Indeed, 
by itself it constitutes the third step of the three-step managing process. 
Without some form of follow-up, the manager cannot hope to manage 
effectively. Merely to launch a project and then to relax on the assump- 
tion that it will be carried out exactly in conformance with initial plans 
and instructions is unrealistic. The manager must follow through with 
measurement, evaluation, and control if the optimum results are to be 
obtained. 

Furthermore, evaluation should not await the completion of the 
project, but should be done throughout the active phase of directing 
the attainment of the objectives. The manager, for example, should be 
constantly on the watch for any impediments to progress that may 
develop. These he can learn about by information communicated back 
to him by his group. This information, acting on the well-known feed- 
back principle, shows him where changes in his plans or his guidance 
of the project may be necessary. 

When, at the end of the project, the final results are measured or 
evaluated, the manager obtains information about the current situation, 
whatever it is. This often then becomes the first element of a new 
managing cycle. Thus measurement, evaluation, and control provide a 
firm foundation for another round of establishing objectives. 



30 THE MANAGING FUNCTION 

Developing People 

One of the most important responsibilities of a manager is the develop- 
ment of the people he manages. It is his job to get results through others. 
Therefore the more competent those others are, the better are the results 
he will achieve. His own success will be proportionate to his ability to 
help others to become successful. 

People, particularly when they are new or inexperienced, need to be 
helped to learn how to do their immediate jobs well. They also need 
guidance in developing the ability to handle more important work later 
on until they have reached the limits of their capacities. All organiza- 
tions change as people enter them, leave them, or move to other jobs. 
Thus the task of developing people is a continuing one which is never 
finished. 

People need to be developed to handle special functional tasks well and 
skillfully. But in addition, some of them— those who show leadership 
ability— need to be developed for the task of managing, which, as we 
have shown, is a specialized kind of work. A corporate enterprise is 
theoretically an immortal entity. Properly managed it will endure and 
prosper indefinitely. But the people who manage it are mortal. Sooner 
or later they will have to turn over their responsibilities to others. If 
the enterprise is not to suffer in the process, there must be other younger 
men trained to carry on competently as the older men lay down their 
burdens. 

The responsibility for providing for his successor lies largelv ^\ith the 
individual manager. He can receive considerable help from a well- 
organized management development program, but no one else can pass 
on for him his experience, his philosophies, and the methods which he has 
found to be successful in his particular situation. The understudy may 
not accept everything the older man tries to pass on, but he ^vill find 
much that is of value, and it is the obligation of the older man at least 
to give him the opportunity of accepting or rejecting the guidance, 
advice, and information he has to offer. 

The developing of a manager is an individualized task. Certain kinds 
of information and training can be given in group training programs, 
of which there are many available. But full development comes only 
from identifying the needs of the individual and the needs of the 
position and then taking the action that is necessary to meet these 
needs. 

If nothing is done to develop new managers, the managing process runs 
down for lack of people to carry it on. Without adequate management, 
the enterprise eventually ceases to exist. The thing that keeps the 
managing process, and hence the enterprise, going is the continuing 



MANAGEMENT AND MANAGING ^^ 

development of new managers. This is symbolized in Figure 1-9 by show- 
ing the element "develop people" as an inner gear driving the whole 
managing process. It is an essential ingredient of continuing good 
management. 

Promoting Innovation 

The eleventh element of managing, "promote innovation," is also 
symbolized as a driving force on the whole managing process, by Figure 
1-9. In the absence of prodding, many people tend to become satisfied 
with things as they are. They are content to settle into a comfortable 
rut and to go on doing things in the same old way. 

But if conditions within a company can become comfortably static, 
conditions in the outside world do not. Therefore, if the company does 
not adjust itself to change, it will soon become out of tune with the 
times. Its products will become obsolete, its methods will be slow and 
costly, its marketing approach will be outmoded, and so on. So it must 
keep up to date or die. 

Keeping up to date or adjusting reasonably promptly to outside 
changes may keep a company going for a long time, and the least that 
the manager should do is to see that this happens. But if he wishes his 
company to be a leader in its field and to forge steadily ahead, then he 
must take the initiative and forcefully promote innovation himself. The 
company that leads the way is the one that has a manager or a team 
of managers never satisfied with things as they are. He constantly en- 
courages people whom he directs to seek new products, better production 
methods, creative marketing approaches, sounder financial control, better 
personnel relations, and better managing techniques. He acts as a dynamo 
at the center of the organization, radiating energy and enthusiasm for 
the new to all activity areas. 



THE IMPORTANCE OF MANAGING 

There are other ways in which the managing process can be described, 
of course, but the concept of the three-step managing process composed 
of eleven elements of managing as given on the preceding pages can 
be of considerable practical value to the manager himself. 

It is evident that since it is the job of the manager to manage, he 
should spend sufficient time managing to get his necessary work done. 
If he does not, someone else will have to do it for him. Since the someone 
else, usually a subordinate, does not have the same over-all viewpoint, 
general information, and recognized authority as his chief, he is not in 
a position to manage as effectively, even though he may have considerable 
managing ability. Therefore the manager must do the managing job 



52 THE MANAGING FUNCTION 

required by his particular level of responsibility if it is to be done 
properly. 

This seems entirely obvious, and yet it is interesting to observe how 
many managers spend time on work that is not managerial in nature 
without realizing it, because they do not have a clear concept of what 
managing actually is. Many a manager is quite willing to admit that 
he does not have a really clear picture of how he spends his time. He 
knows, of course, that he busies himself with a great variety of tasks. 
These are thrust upon him by his subordinates, or he undertakes them 
because they seem necessary and unavoidable, or he does them largely 
because he finds them interesting. Because he is more or less the director 
of his own time, he can spend it managing or he can spend it doing other 
things. 

Often a manager feels he spends all his time managing, when actually 
this is far from being the case. For example, when the chief executive 
of a company takes an important person on a tour of the business 
premises, he is not managing. He is performing either a sales function 
or a public relations function, depending upon whether the visitor is a 
potential customer or a dignitary whose good opinion it is important 
to have. When he signs the payroll checks, he is not managing. He is 
performing a clerical function which could be delegated to someone 
else under the proper safeguards and system. ^Vhen he gets involved 
in specific problems such as how the office should be laid out, how a 
major grievance should be settled, or how new financing should be ac- 
complished, he becomes an industrial engineer, a labor relations man. 
or a financier. Viewed in this light, it can be seen how little time many 
managers spend actually managing and how much time they spend 
being salesmen, technicians, or doers of routine clerical tasks that have 
nothing to do with managing. 

There are, of course, many occasions when it is important that a 
manager perform certain specific functional tasks. In a small company, 
for example, the president must do many things that are not managing 
because there is no one else available to do them. But every manager 
should be conscious of the time he spends managing and the time he 
spends not managing. His primary job is to manage, and he should be 
sure that his managing work gets done first. There is always a certain 
temptation to spend time on pleasant, nondemanding tasks or on func- 
tional activities which long previous experience makes it easy to perform. 
But the main responsibility of the manager is to manage, and although 
it is often hard work, requiring energy and concentration, it must 
always be given precedence by the manager who seeks to achieve re- 
sults. 



MANAGEMENT AND MANAGING 



IMPROVING MANAGING SKILLS 



55 



As we have said, it is often difficult for a manager to recognize just 
how he is spending his time. As long as he is busy with the many details 
that press for his attention, he may feel that he is managing when he 
is not. This is because he either does not stop to think about what he 
is doing, or more probably, because he does not have a clear concept 
of just what the task of managing is. 

The concept of managing as set forth above may not be perfect or com- 
plete in every detail for every situation, but it does present a picture 
which can help a manager recognize what he is doing. The picture was 
developed as the result of a number of discussions held by a research 
committee of the Association of Consulting Management Engineers which 
was attempting to identify the common body of knowledge that should 
be possessed by all professional management consultants. I was chair- 
man of this committee, and as our discussions progressed, I attempted to 
apply the conclusions we were reaching to my own position as chief 
executive of one of the larger management consulting firms. I found 
that the concepts not only enabled me to distinguish readily between my 
managing and not managing activities, but that they helped me to plan 
so that the most important phases of my work, the managing activities, 
actually got done. I am convinced, therefore, that these concepts helped 
me to become a better manager. 

I also found that the concepts helped me in my personal consulting 
activities, activities which it is evident were not managing but the 
counseling services which are the product of our firm. The concepts 
helped me to assist client-managers who were themselves having diffi- 
culties with the management of their own time. 

From this, it was a natural conclusion that most, if not all, managers 
undoubtedly had problems of time management based on the difficulty 
of understanding clearly the complex task of managing under modern 
business conditions. Thus, if the task of managing could be described 
sufficiently well to make its nature readily apparent, it seemed logical 
to believe that the whole quality of American management could be 
improved. 

In the chapters that follow, this Handbook undertakes to develop in 
further detail and with greater clarity the essential nature of the task 
of managing as it is performed by representative top managers of Ameri- 
can business. It is a many-sided picture, because managing is a complex 
process both in itself and in its many relationships to the social and 
economic setting in which it is practiced. But as the authors unfold 



34 THE MANAGING FUNCTION 

their experiences and the conclusions which have been drawn from 
them, a concept of the task of managing emerges which, once grasped, 
will enable the manager at whatever organizational level to perform 
more understandingly, objectively, and skillfully his function of planning, 
guiding, directing, and controlling the activities of other people in order 
to achieve desired goals. 



Curtis H. Gager 



FORMER EXECUTIVE VICE PRESIDENT 
THE COCA-COLA COMPANY 
ATLANTA, GEORGIA 




Over a period of some forty years, Curtis H. Gager has "touched al- 
most all the bases" in the food industry. 

Curtis Gager began working for the Great Atlantic and Pacific Tea 
Company while still in school, and it was there that he became familiar 
with retail-food-store operation. After a short time with a stockbroker, 
he became an assistant to the general manager of the International 
Textbook Press in Scranton, Pennsylvania, where he developed his 
interest in the fields of marketing and general management. 

Mr. Gager returned to the food industry with the Welch Grape 
Juice Company, where he spent seven years in advertising and sales 
promotion management before moving to General Foods Corporation 
in ip2p, where he was continuously associated for the next twenty-six 
years. 

After eight years as product advertising and merchandising manager 
for General Foods, Mr. Gager became general manager of Walter Baker 
& Company (a General Foods Division) and a year later, in ip^8, ivas 
named president. While president of Walter Baker he reorganized the 
company, established new policies, devised plans for growth, product 
improvement, and new product developtnent, and succeeded in creat- 
ing and maintaining a profitable operation. 

Curtis Gager returned to the parent organization as vice-president- 
operations in 1944. The primary objective in this assignment was to 
increase the spread of management decentralization throughout the 
corporation. This was accomplished by selecting and organizing man- 
agement teams for each of the many divisions within General Foods. 
At all times during the eleven years Mr. Gager was vice-president-op- 
erations, he was responsible for not less than five or six of the divisions 
which produced such well-known household products as Post Cereals, 
Franklin Baker Coconut Products, I^Ieheart Bros. Flour, Maxwell 



35 



House Coffee, Jell-O, and Gaines Dog Food. He was elected a director 
of the corporation in 1947. 

Mr. Gager was invited to join The Coca-Cola Company in 75)55 as 
vice president for sales and, the year following, was elected executive 
vice president, remaining in that position until ip^p, when a coronary 
attack resulted in his resignation from Coca-Cola to lighten his load 
by doing consulting work on a variety of management and marketing 
problems. 

At the present time, Mr. Gager is a director of Encyclopaedia Britan- 
nica and Encyclopaedia Britannica Films, Incorporated. He is a former 
director of the Milton, Massachusetts, Savings Bank; General Foods 
Corporation, and various subsidiary companies of General Foods Cor- 
poration; a number of Coca-Cola Bottling Companies throughout the 
country, and the Muzak Corporation. 

Mr. Gager was a director of The New England Council and a direc- 
tor of the American Management Association, in which he is active as 
a member of the General Management Planning Council, and a mem- 
ber of the Society for the Advancement of Management. In 1958, he was 
given the award for distinguished merit by the Wharton School, Uni- 
versity of Pennsylvania. 

Born in Wilkes Barre, Pennsylvania, in igoi, he received his primary 
education there and then entered the Wharton School of the Univer- 
sity of Pennsylvania. He was also a member of the Hansard Business 
School Conferences in 1938 and 1939. Curtis Gager is the father of five 
children and now makes his home in Bronxville, New York. 

May, i960 



CHAPTER 2 

Management throughout History 



We are confronted with a concept that the work of management com- 
prises a vast number of ideas which have evolved from the culture of 
Western civilization. Any sketch we try to develop of management 
throughout history can be no more than a mere outline. 

The story of mankind itself is incomplete, and any narrative which 
attempts even in a measure to weave an accurately connected story of the 

36 



MANAGEMENT THROUGHOUT HISTORY 37 

inception, the unfolding, and gradual progress of the development of 
management is impossible. New fragments of fact and history appear as 
each fresh adventure in archaeological discovery is revealed and the 
secrets hidden in antiquity are laid bare. 

Our history in this as in other fields is too fragmentary to be a con- 
nected piece, so whatever we bring together must be regarded as being a 
narrative about the truth. Distant chapters are either missing altogether 
or too indistinct to trace, and even the more recent modern history is too 
complex to be dissected and explained with accuracy. 

Some things seem to stand out in clear dimension. Certain ideas have 
persisted as man has learned more about himself and his relation to other 
people. The process we call "managing" runs concurrent with all history. 

Notwithstanding the shocking fears and threats of an atomic age, there 
is a strong case to be made for the proposition that man is learning how 
better to deal with himself and with other people. It can be demonstrated 
that in the fields of industrial and commercial management a vast 
progress in civilization has been achieved. 

An amazing and even unbelievable feature about the history of man 
is that ideas take so long to develop. The process of communciation is 
slow and labored even today. We are unable to grasp the fact that what 
we are utilizing today are ideas which came into being 200 or 2,000 or 
even more years ago, ideas which, at the time of their invention or 
inception, were advanced and elaborated by one individual or by but 
a few, and then spread slowly. New learners in a later generation found 
new light or caught a richer vision and a fuller meaning in an old idea 
and felt its potentialities. Not infrequently the result was heralded as 
new discovery, new enlightenment, and in its new form, it often was an 
enlargement or better adaptation of an old idea or concept. 

It hardly needs mention that many topics closely allied to any expo- 
sition of management thinking throughout history cannot be covered 
in this narrative because they are too numerous to mention and the 
origins are lost beyond recall. 

In attempting to sketch even a few of the events which mark the 
development of man, we do so at the risk that authoritative historians 
and other students of antiquity will say that the narrative is too incom- 
plete and superficial to be an accurate chronicle. Nevertheless, we can 
make a better appraisal of recent progress if we try to take a long 
backward look. We can also find convincing proof that managing as an 
art and science has come into being and recognition as a profession. 

Men and students in other professions are becoming aware that man- 
aging is assuming a professional status. To the new students this is per- 
haps surprising. 

We can and do realize that after thousands of years, the managing 



38 THE MANAGING FUNCTION 

function is now clearly to be seen to consist of a body of knowledge 
governed by principles. 

Although in order to understand and to employ the principles one 
must have experience, the principles can be taught as those of anv other 
of the arts and sciences can be taught. Managing as a function is now 
better understood than ever before in the history of the world. 

We know that managerial functions are both distinctive and dis- 
tinguishable from the many technical and special skills which are needed 
in the conduct of war, in the administration of a government, or in the 
operation of a business. 

Although the principles we think of as belonging to the managing 
process, our knowledge about them, and the methodology to employ them 
are still evolving, the hard steps to establish some uniformity of under- 
standing of the subject matter concerning the principles have been taken. 
The long period of trial and error and the questioning and searching 
out of principles have produced a valid body of information. Today the 
new student of management is several hundred years more advanced than 
he could have been even in 1850. 



MANAGEMENT PHILOSOPHIES OF THE 
MID-TWENTIETH CENTURY 

The lessons which are taught by time, the environmental effects of 
the passing ages, the influence of cultural change, the development of 
man in his upward march may often seem to be too slow. There can be 
no doubt but that progress in the understanding of management moved 
into the learning stage about 1850, and learning has advanced rapidlv 
since then. Recently both learning and understanding have moved s^viftlv 
in the United States. Today there is the promise of a total progress in 
managerial effectiveness which only a few years ago was beyond compre- 
hension. 

If we ask where we are in this evolution of thought and idea and ^diat 
it is that some of the thoughtful men of business are saying about their 
work as managers; if we consider the ideas about professional managing 
which are being discussed and spread to other minds; if ^ve read the 
philosophies which light the present thinking expressed by leaders about 
their responsibilities and the opportunities in managing, ^vhat shall ^ve 

find? 

Here are but a few of the many examples. Enough could be found to 
fill a heavy volume, but these will serve to point the content and the 
direction. 

Lawrence A. Appley, able president of the American Management 
Association, spoke on "Education for Management" at the Ninth Inter- 



MANAGEMENT THROUGHOUT HISTORY 

national Management Congress in Brussels, Belgium, July, 1951. What 
he declares to be the skills o£ management is enlightening: 

When we speak of management skills, the emphasis is on abilities rather than 
on knowledge— abilities in\he managerial and administrative activities as con- 
trasted with those required in the technical operating phases of a business. 

Management skills in their broadest sense are: 

1. The ability to maintain tlie economic health of an organization. 

2. The ability to integrate the viewpoints of different management functions 
and people within the organization. 

3. The ability to direct the affairs of an organization in proper relationship 
to the community, the industry, the national and international economy. 

4. The ability to instill a service motive into the organization which takes 
into account those factors which cannot be evaluated in terms of money, such as 
loyalty, tradition, friendship, understanding, courage, patience, perseverance, 
and spiritual values. 

5. The ability to make an organization dynamic, adaptable to changes in the 
light of new circumstances. 

6. The ability to provide human satisfaction in work output and relationships. 

Keith S. McHugh, distinguished leader of the New York Telephone 
Company, talking on the subject of ''Long-range Business Policies" be- 
fore a conference of men engaged in general management, makes these 
observations: 

All corporate businesses begin with a charter or license of some sort granted by 

the sovereign state. ... 

The companies which seek and obtain these charters, therefore, actually ac- 
cept a responsibility to serve the public. . . . 

However, the general public quite often is critical of corporate activity. Some- 
times the ordinary human suspicion of size alone creates criticism. . . . 

In recent years, much of the attack on business has been focused on 
profits. . . . Lately, business men and some others have done much to explain 
the true function of profits, and effective educational work is continuing in many 

areas. ... , 

But all the public has not yet been convinced of the constructive business and 
social policies that have guided the managements of thousands of successful com- 
panies large and small. I believe that an important reason for this is that man- 
agement has failed to state its own long-range policies clearly and emphatically. 
Perhaps, therefore, a clear statement of the policy which a corporation intends 
to follow in carrying out its responsibilities to the public might be useful. 

The greater part of the people in the U.S. are in business. If the standards, 
aspirations and objectives of business were constantly stated and lived up to, it 
might well increase our belief in our own purposes to the benefit of everyone. 
And it is possible that the very act of stating objectives might lead to their 
clarification and also to the performance of them. A man cannot well be proved 
lost who had made no determination of where he is going, but one who has 



40 THE MANAGING FUNCTION 

Stated where he is going may be held to the path by his employees, his customers, 
or the public generally. 

In discussing "Business Leadership for a Free Society," when I was 
president of Walter Baker & Company, Dorchester, Mass., I commented 
to an audience of managers on the need for clear-cut basic attitudes: 

There is no escaping the need for better leadership, founded on a considered 
and unmistakable philosophy of management. Ideally, in every organization, it 
should be stated in precise terms for everyone to see. 

The employee especially wants to know— needs to feel-that his management 
has some sort of code against which to square its policy and its actions. . . . 

And a body of convictions-a written statement of guiding principles-will help 
the manager also to achieve his company's aims and to discharge his responsibil- 
ities. 

If, as industrial leaders, we are to serve successfully, not only must we know 
what we think and believe, but what we think and believe must be better known. 
In other words, we in management must be willing to say what we stand for. 
We must present our beliefs in a more positive and inspired form. We shall 
have to be more candid and more specific. 

Any management creed must include certain important ideas. Basicallv. it 
should fulfill better leadership in three respects: the definition of better ideals 
which will aid the success of the business; the development and encouragement 
of attitudes which will aid the ideals, and the producing of means and methods 
which will better serve the human spirit. 

Individual and Company Creeds of Management 

While management philosophy is a somewhat personal thing, there 
are at least two major schools of thought on how to manage a company. 
One emphasizes thinking at the top by one man or a small group of men; 
the other encourages the combined intelligence and initiative of the 
entire organization. 

The management philosophy of America Enka Corporation as set forth 
by John Bassil outlines basic goals: 

1. To maintain a high level of executive and employee morale 

2. To be the best managed company in the industry 

3. To be the most highly respected company in the industry 

4. To be the most successful in relation to profit potential 

How well we succeed in reaching these goals is for others to judge. ^Vhat ^\e are 
interested in is always striving to attain them. 

Some of our specific objectives aimed at achieving these basic goals are: 
1. Develop a research-minded organization in its broadest sense. The rayon 
industry is a product of scientific research. But research may be just as produc- 
tive in the fields of human relations, management, marketing, and others, as in 
the field of technology. We believe in the principle that it is morallv dishonest 
to decide on the basis of opinion those things which can be determined on the 
basis of fact. 



MANAGEMENT THROUGHOUT HISTORY 41 

2. Develop a motion-minded supervisory force, with an appreciation of the 
need for methods improvement and work simplification, and a firm belief in the 
value of good human relations. 

3. Develop an industrial relations program designed to promote maximum 
utilization of our human resources and the maximum degree of satisfaction on 
the part of all our people in the performance of their tasks. 

4. Bring our administrative skills up to the level of our technical competence 
and raise the level of both to a still higher plane. 

5. Create a climate in which our whole management group can thrive and 
develop, and prepare itself for greater responsibility. 

6. Through constant improvement and a desire for growth on the part of 
individuals, create internal pressures which will force the company to grow, 
providing bigger and better jobs for more people and a broader earnings base 
for our stockholders. 

7. Employ the most modern and effective management tools and engage 
such outside assistance as may be necessary to insure the application of the best 
possible management "know-how." Management improvement should be recog- 
nized throughout the company as a continuing responsibility. 

8. Establish a system for crystallizing long-range plans and objectives. 
Planned action helps apply the principle of management by exception. We 
thereby can concern ourselves with deviations from plan or standard rather than 
matters of routine. This method of operation results in conservation of executive 
time and energy which can be used for planning and thinking ahead. 

9. Insure a sound organization structure at all levels. This is accomplished 
by applying sound principles, developing an over-all company plan, and syn- 
chronizing departmental organization into the over-all pattern. Our organization 
plan is described in an Organization Manual containing 45 organization charts 
and job descriptions for all supervisory and executive personnel ranging from 
assistant foreman in the plants to president. 

10. Reduce the company's plans, policies and procedures to writing. In so 
doing we insure participation by securing concurrences of interested individuals. 
Written statements require a considerable amount of work. But reducing things 
to writing clarifies our thinking, makes our objectives clear, and brings things 
out in the open w^here people can see and profit by them. 

11. Establish a well-balanced system of reporting designed to insure that all 
levels of management are fully informed of progress covering significant opera- 
tions, thus enabling interested individuals to initiate appropriate action when 
progress may not be satisfactory. 

12. Continuous appraisal of results through measurement of performance in 
terms of predetermined plans. To a large extent our management objective is 
control through self-control. Since each department head prepares his own plans 
for higher approval, he helps to establish his own goals. It is an important aspect 
of participation. To judge his own performance gives him a measure of self- 
appraisal. This is particularly stimulating when the plans have been carried out. 
Considerable personal satisfaction is attached to setting one's own standards and 
objectives and controlling results. 

13. Encourage two-way communication, bottom-up as well as top-down, and 
"open shop" in management. 



42 THE MANAGING FUNCTION 

14. Promote among our employees the freedom to speak one's mind on any 
subject concerning the company welfare. 

15. Accord to our executive group the same right to be heard by higher 
authority as we do our hourly workers-without fear of reprisal or recrimination. 
People with honest differences of opinion on subjects of major importance are 
encouraged to go to higher authority to get them resolved. 

16. Be a good corporate citizen by assuming our full share of responsibility 
in the communities in which we operate and by constantly striving for good 
community relations. 

17. Keep before our entire management group the importance of setting and 
attaining objectives so that our profit goal can be met. 

Lewis H. Brown, expressing a philosophy for "A Common Ground for 
Management and Labor" at the Seventh International Management 
Congress in Stockholm, said: 

We who are responsible for the management of industry in supplying the 
needs of the public for goods and services and who recognize our obligations to 
stockholders and employees believe: 

That we should constantly seek to provide better values at lower costs so that 
more of our people can enjoy more of the world's goods. 

That we should strive to develop the efRciency of industry so as to earn a fail 
return for the investing public and provide the highest possible reward for the 
productivity of labor. 

That we should stimulate the genius of science and utilize the methods of 
research to improve old products and create new ones so as continuously to pro- 
vide new fields of employment for the present and coming generations. 

That management should encourage fair trade practices in business ^diich. 
whether affected by competition or cooperation, will be so shaped as to be 
for the best interests of our customers and of society as a whole. 

That it is management's duty to be alert to its own shortcomings, to the need 
for improvement, and to new requirements of society, while ahvavs recognizmg 
the responsibility of its trusteeship. 

That business in this country has never been what it could be and never 

what it yet will be. ■> ■ ^ a 

That business, labor, government and agriculture workuig hand m hand 
can provide jobs and the opportunity for all to .vork for security ^nthout loss 
of our liberty and rights as free men. 

That it is my suggestion of a common meeting ground not only for man- 
agement and labor, but for all of us. 

Clarence Francis discusses a "Hippocratic Oath for Management": 

I believe that a business must be run at an adequate profit and must hold 
its own in fair competition with other businesses. 

Within my sphere I will do my level best to help keep mv business 
prosperous and strong. 

I believe that business must serve employees, stockholders, consumers, and 



MANAGEMENT THROUGHOUT HISTORY 43 

government, and that management must keep the interests of all these elements 
in balance. 

... To the extent of my authority, I will try to preserve this balance. 

I believe that management's operating goals are continuously improved 
productivity and growth-in order to provide jobs, reward investors, attract 
capital, and provide more and better goods and services at lower cost. 

... In any capacity in which I find myself, I will work toward these goals. 

I believe that the greatest assets of a business are its human assets and that the 
improvement of their value is both a matter of material advantage and moral 
obligation; I believe, therefore, that employees must be treated as honorable 
individuals, justly rewarded, encouraged in their progress, fully informed, and 
properly assigned, and that their lives and work must be given meaning and 
dignity, on and off the job. 

... If I have the supervision of so much as one other person, I will strive 
to honor these principles in practice. 

I believe that a reputation for integrity is another priceless asset of any busi- 
ness; and that management must deal fairly with customers, competitors, and 
vendors, advertise truthfully, fulfill its commitments, cooperate with other man- 
agements in the betterment of business as a whole, and oppose any artificial 
restriction that may limit production, fix prices, or restrain trade. . . . 

... In my daily work I will try to deserve, and make my business deserve, a 
reputation for integrity. 

I believe that the future of the American economic system depends on the 
confidence, good will and understanding of the people, and that business leader- 
ship must make itself a responsible part of the human community by participat- 
ing in worthy activities locally and nationally. 

... As a representative of business and as an individual, I will identify my 
business and myself with the welfare of people. 

I believe that whenever business has earned a hearing, it has not only a right 
but a duty to ask for public confidence; and that it must speak freely, give 
information gladly, and answer the attacks of those who seek to undermine 
American freedom under democratic capitalism. 

... I will speak out in behalf of my business and the system which it repre- 
sents. 

I believe finally that business leadership is nothing less than a public trust; 
that it must offer a message of hope and courage to all people; and that it can 
help an economically strong America to lead other nations to lasting prosperity, 
freedom and peace. 

... I will work not only for the advancement of myself, my family, and my 
country, but for liberty and democracy for America and for the world-now and 
in the years to come. 

These statements, selected almost at random, are of fairly recent 
origin. They come from men who have carried high-ranking management 
responsibility, men who have been earnest students of their ftmction as 
managers. Such statements are indicative that managing is coming to be 



44 THE MANAGING FUNCTION 

recognized as a profession. It is of special significance that statements 
of such basic belief are rare in history before the twentieth century. 

While each credo is individual, the serious student must be impressed 
with the common thread— the similarity in underlying philosophy at 
work behind the thoughts which have been expressed here. 

Everyone must conclude that views like these did not spring full- 
grown into being. They derive from history, from experience, from 
observation, and from better understanding of human nature, from 
thinking about the work which is managing, and from better considera- 
tion and understanding of its great responsibilities. 

Earnest and well-meaning critics of modern business often possess too 
little or no knowledge at all of what has been taking place in the evolu- 
tion of management thinking. 

Never before in the whole course of human events was there so great 
a challenge or so great an opportunity for the contributions which men 
who are skillful and "management-enlightened" can give to society. 

We have come to believe that sound, efficient management may be de- 
fined as the art and as the science of getting things done through the 
use of right leadership in the directing of people. 

But how have we come to this view? Is there any explanation in 
philosophy or learning or basic technique which can be gleaned from 
the earliest days of mankind? What may have come to us from the earliest 
tribal organizations, or from the early nomadic wanderings of families 
and peoples? What can we find in the earliest agricultural societies, or in 
the military conquests that beat their paths again and again over the 
ground of the Middle East? What is there to be learned from the earliest 
of the now-unburied societies, or from the ancient empires of the Persians 
or the Egyptians, or from the Greeks? Is there some heritage from the 
ages which became the foundation of what wg now think and believe? 

It is interesting to speculate on how the arts and skills of managing 
may have developed and how the mind of man has moved -^s^ith more 
scientific effort in this worthwhile field of human endeavor. 

It helps our perspective and our understanding if we try to look back- 
ward and speculate on the origins, even though we can only approximate 
them and fill in much of the narrative with supposition and conjecture. 



BRIEF HISTORY OF MAN S ORIGINS 

We realize now that man is slow to learn, but as we survey the stages 
of man's groping toward a civilized existence, w^e are reminded that 
thousands and thousands of years passed in an almost complete darkness 
of intellect. Learning, except the simplest of arts and skills, was certainly 



MANAGEMENT THROUGHOUT HISTORY 45 

meager for thousands and thousands of years. The means for communi- 
cation had not even been invented. Looked at in relation to the whole 
period of man's evolution, it may surprise us that language is a fairly 
recent device. After language of sorts came to be used, it was thousands 
of years before writing was known. In a desperation of contriving to com- 
municate, men learned to use clay tablets, stone, cattle skins, and papyrus 
for recording. Much history is lost and may never be uncovered or pieced 
together. Clay tablets break and fall to dust, cattle skins disintegrate, and 
the records left on papyrus have been burned or dissolved by the ele- 
ments. 

Even so, we know infinitely more today of what was going on in 
the widely separated capitals of 6500 b.c. than men knew at that 
time. 

In the Interglacial Age, 50,000 years or so ago, man wandered over the 
land, leaving nothing but flint implements as evidence of his presence. 
It may be that he did not speak at all, or but little. He had nothing 
that could be called a language. His concerns were food, fire, shelter, 
protection of himself and family, and in some way he continued to de- 
velop. After another 20,000 or 25,000 years, he was or is identified as 
Homo sapiens. For hundreds of centuries he was acquiring skill of hand 
and limb and power and bulk of brain, in an environment unknown to 
him. 

Certainly until language had developed even to a meager extent, there 
could have been little thinking beyond the needs of his day-to-day ex- 
perience. 

Since early man had little or no speech, he could do little to pass on 
the notions that came to him or develop any tradition or record any 
history of his activities. But there must have been certain fundamental 
things in men's minds before the coming of speech. Perhaps fear of the 
"old man of the tribe" was such a notion. The young grew up under 
that fear, and objects associated with him were probably under taboo. 
Only by respecting this primal law could the young escape the old man's 
wrath. There is a deep-rooted instinct for authority, and even the fear 
of it, very much present in the human animal. 

Confusedly, no doubt, but under the stimulus of need and the pos- 
sibilities in human cooperation, mankind was reaching out for guidance 
and knowledge. Men were becoming aware that personally they needed 
protection and direction, cleansing from impurity, and power beyond 
their own strength, and doubtless in response to these ingings, the men in 
a group of families who were bold, wise, shrewd, and cunning ultimately 
became leaders, and as the population expanded, they became magicians, 
priests, chiefs, and kings. 



46 THE MANAGING FUNCTION 

Many impulses are at work in prompting men to seek ascendancy over 
other men. The earliest magicians must have believed more or less in 
their own magic to achieve a following, as did the ancient priests in their 
ceremonies and the chiefs in their rights, which were more than likely 
gained by force. 

For countless thousands of years, man was continually tending to dif- 
ferentiate into several species. He was a wandering animal. Man imitated. 
Man then fought to conquer man. As a hunter, he was obliged to follow 
the migrations of his quarry. 

It seems conclusive from any and all evidence thus far revealed that 
for many thousands of years man existed as a savage. A quickened instinct 
for protection caused families to stay close to each other. There were 
decisions to be made bearing on their existence: where to live, where 
to hunt for food, how to protect themselves against the elements. The 
aggregation of people, however small, required family leadership. Ho^v- 
ever attained and maintained, it existed. Whenever food became scarce, 
the family or group of families searched for new supplies. Nomadism 
undoubtedly grew from some such human requirement. Nomadism 
produced the need for decisions respecting safety, food supply, and 
protection. 

Nomadism-of family groups-in search for food probably produced 
contact with other family groups. The aggregation with other family 
groups related by the same instinct and driven by the same interest 
produced the tribe, but it also produced the need for a greater leadership. 
We can only speculate that in a savage world, leadership ^\'as ^von bv 
force. The mightiest man became the symbol of greatest security. He 
doubtless held the post until some young buck felt an urge to rule. 
Doubtless, new leaders emerged as the result of battle. 

The Beginnings of Civilization 

The appearance of agriculture in its crudest form tended to cause the 
wandering family or tribe to settle down. It must have taken thousands 
of years for man to learn to talk in a way that ^vould let him transmit 
any but the simplest of ideas. It is interesting that the same grammatical 
ideas are traceable throughout one whole family of languages. ^\ith 
enough similarity to suggest that they are variations of one basic con- 
cept of expression. 

The difficulties of transport and the obstacles in geographic barriers 
must have meant that the flow of ideas moved westward rather than east 
ward, but even if these ideas did not spring from a common source, 
geography, climate, the sea, roads, and perhaps other influences ^vere at 



MANAGEMENT THROUGHOUT HISTORY 47 

work in leading to the rise of civilization and a common future in the 
West. 

Civilization requires the settlement of men upon an area. It requires 
cultivation, assemblage of men who live in buildings, inhabit a common 
village or city, and share a common rule. 

As some families settled, the men probably continued to forage for 
food or follow the hunt. The persons who stayed at the campsite de- 
veloped home arts and at some point watched things grow. We cannot 
imagine the curiosity or observation by which seeds were discovered or 
the intense fascination produced by the planting of wild wheat in a new 
place. 

Probably seed planting was the invention of some women who specu- 
lated on what was happening in nature. From it agriculture was born, 
and so was the possibility of an excess supply of food. And the excess 
supply of food meant that more people could congregate at the crude 
dwelling place. 

However slowly this development came, it was the beginning of a 
village life and a pastoral society. Cattle, sheep, and goats had somehow 
been domesticated. They could be grazed nearby. 

The congregation of peoples in small villages produced the need for 
some crude attempt at management of their common affairs. They had 
need for protection from attack and capture by raiding nomads or envious 
neighbors, but the need for managing of a sort was evolving. Larger 
and larger groups of people were forced to band together. The function 
of leading became a necessity. Ignorance of the world, of nature, and 
of things was universal. The law of the savage was the only law^ The 
leader of one village made war on the nearby peoples. Annihilation of 
enemies preserved the hunting grounds, eliminated competitors, and 
made way for expansion of the conqueror's village. 

So may we imagine and describe the beginnings of the tribal govern- 
ment and what soon became village life and the beginnings of civil 
administration. Thus we move from family to tribal management and on 
to village management as a necessity to social development. 

The tribe was created when families banded together for protection. 
At some point where a surplus of agricultural products became available, 
it was practical for some people to give up the nomadic life and gather 
into villages. And there must have been born the problems and rela- 
tionships which grew out of exchanging one kind of surplus— the product 
of a family of artisans— for another. 

The principal work of leadership for countless years was conquest. 
When the conquest was over, the life of the villages relaxed into peace- 
ful ways and the crude arts moved forward; brick and pottery were 



^g THE MANAGING FUNCTION 

made, decoration was practiced, crude implements were fashioned. 
Invention had begun to spring from the simplest needs to hold together 
the family, the tribe, the little village. 

Wars of annihilation must have given way to wars of exploitation 
as men's ideas of more things to be done suggested the need of more 
labor, and acquisition of slaves became the motivation for wars of con- 
quest. The word "economic" was not even conceived, but elementarv 
selfishness taught that killing of captives was in a way uneconomic; slaves 
could work, build, till the soil, tend cattle, fight. Ways had to be in- 
vented for dealing with human problems and for supplying the wants of 
the community. Slaves could supply the extra labor. 

The emphasis was on acquisition and government by conquest. Some 
ideas of managing people and their undertakings must have been present 
in those individual leaders who were more imaginative than others. In- 
deed, in following the history of ancient peoples, there are examples indi- 
cating that some leaders must have been imaginative enough or wise 
enough to realize that as their rule expanded, some kind of organization 
had to be created. 

The successful conqueror became king. His riches most often were those 
taken from the conquered who were reduced to slavery. ^Vhen the con- 
queror had won, he could not remove himself from the problems of civil 
government and the administration of people. The ruler, whatever he 
may have been called, was confronted with numerous problems of people. 
and he needed help. If for no other reason than insufficient time, sheer 
sloth, disinterest, or laziness, the conqueror asked one or another of his 
closest associates to deal with the problems. 

The idea of a chief administrator and the use of trusted servants by hmi 
suggests that the essential structure of management organization, even as 
we know it today, existed in rough form in early times. The leader and 
the chief spokesman created, by natural consequence, the council, the 
stafE. The executive function of getting things done through people is 
concurrent with history. 

Ancient history is replete with stories of the disorder produced bv some 
nomad leader or tribe powerful enough to produce a combination or 
unity of kindred tribes who then made war upon the small, settled com- 
munities. The villagers became captives, reduced to servitude and slaverv. 
a practice which still is regarded as a form of wealth in a few areas of the 
world, even in our times. We see, too, that after some generations, the 
conqueror and the conquered intermarry, exchange learning, religions, 
and ideas. As this process unfolded, ideas were absorbed and m turn 

spread. 

There are setbacks, massacres, wars, pestilence, and flood, but the story 
is one of new growth. For thousands of years, this new thing which was 



MANAGEMENT THROUGHOUT HISTORY 49 

to be called civilization grew as a tree grows, now losing a limb, now 
stripped by storm, but always resuming its growth. 

Ancient Middle Eastern Civilizations 

Perhaps the first people to form real cities were, as Wells says, a people 
of mysterious origin called the Sumerians in Mesopotamia. These people 
learned how to fertilize their fields with irrigation; they were skillful 
hydraulic engineers. They had cattle, sheep, and goats. They raised 
brick structures, made pottery, and learned to write on clay. Home arts 
were fostered. They raised towerlike temples to their religion. 

Ultimately, the characteristic form of government in the Eastern so- 
cieties was an absolute monarchy, divinely ordained. The great king was 
the agent of the gods. Whatever there was of science, learning, or artistry 
was devoted to the service of the gods and the god-king. 

A study of these developments points early in human history to the 
principle of fixing authority and responsibility. The principle is violated 
repeatedly. History tells of rulers who divided their authority with the 
priests and of those who were so ignorant themselves of the right de- 
cision that they wished to share the burden or blame with the priests. 
The priests vied with the king for ascendancy. Some kings learned that 
the division of authority produced disasters or disappointment, and they 
themselves became priest-rulers. 

It must also be supposed that the ancient temples became a seat of 
power. Priests had time to think, to contrive, to scheme, to learn, so that 
with every development of language and of speech, it became possible to 
intensify control over people with the invention of taboos and restraints. 
Ceremonies to propitiate the gods must be of most ancient origin. 

A story of the Tigris and Euphrates civilizations, although bare and 
sketchy, is a story of conquest. Old rulers were replaced by new; races 
were swallowed up; languages vanished; the economy was based on con- 
quest and the labor of slaves. We can imagine that the plow does its work, 
harvests are gathered year by year, tradesmen work and acquire fresh 
devices. New metals are shaped into new tools, knowledge of writing 
spreads, the horse is taught to pull loads and becomes an addition to 
manpower, and horse-drawn wheeled vehicles become part of mankind's 
permanent inheritance. The volume of trade upon desert and sea in- 
creases, knowledge grows, and men's ideas increase in number and spread 
far and wide. 

Code of Hammurabi. The special emphasis here is that after hundreds 
of years of warfare, the Babylonian kingdom was founded, and a leader, 
Hammurabi (2123-2081 b.c), prepared the first great code of law and 
gave encouragement to learning. 

However imperfectly, men had learned to recognize the desirability of 



KQ THE MANAGING FUNCTION 

order and organization of rule and law in managing their lives and the 
activities of people in village association as well as in a nation. 

Under Hammurabi the cities of the valley were forced to unite and 
keep peace and were disciplined into order and security by a historic code 

of laws. 

The Code of Hammurabi reads, in part: 

When the lofty Anu, King of the Anunaki, and Bel, Lord of Heaven and 
Earth, he who determines the destiny of the land, committed the rule of all 
mankind to Marduk (national deity) . . . when they pronounced the lofty name 
of Babylon; when they made it famous among the quarters of the ^vorld and m 
its midst established an everlasting kingdom whose foundations were firm as 
heaven and earth-at that time Anu and Bel caUed me, Hammurabi, the exalted 
prince, the worshiper of gods, to cause justice to prevail in the land, to destrov 
the wicked and the evil, to prevent the strong from oppressing the weak ... to 
enlighten the land and to further the welfare of the people. Hammurabi, the 
governor named by Bel, am I, who brought about plentv and abundance: who 
made everything for Nippur and Durilu complete; . . . who gave life to the 
city of Uruk; who supplied water in abundance to its inhabitants: . . . who 
made the city of Borsippa beautiful; . . . who stored up grain for the mightv 
Urash- . who helped his people in time of need; who establishes m security 
their property in Babylon; the governor of the people, the servant whose deeds 
are pleasing. . . . 

Some of these words have a modern ring; one would not readily attrib- 
ute them to an Oriental "despot" in 2100 B.C. or suspect that the laws 
they introduced were based upon Sumerian prototypes ^diich .vere. per- 
haps already centuries old. This ancient origin combined with Babvlo- 
nian circumstance to give the Code its character. It begins .vith compli- 
ments to the gods. It mingles the most enlightened laws ^vith the most 
barbarous punishments. All in all, 285 laws, arranged almost scientificallv 
under the headings of personal property, real estate, trade and business, 
the family, injuries, and labor, form a code more advanced and civilized 
than that of Assyria a thousand and more years later and in manv respects 
"as good as that of some modern states." (The habit of stamping a legal 
contract with an official seal goes back to Hammurabi.) 

The great Babylonian brings his legislation to a close .vith .vords that 
have a modern ring: 

The righteous laws which Hammurabi, the wise king, established, and [bv 
which] he gave the land stable support and pure government ... I am the 
.uardian governor ... in my bosom I carried the people of the land of Sumer 
and Akkad- . in my wisdom I restrained them, that the strong might not 

oppress the weak, and that they should give justice to the, orphan and the 
.v^dow ... Let any oppressed man, who has a cause, come before mv image as 
king of righteousness. Let him read the inscription on my monument! Let him 



MANAGEMENT THROUGHOUT HISTORY 51 

give heed to my weighty words! And may my monument enlighten him as to his 
cause, and may he understand his case! 

May he set his heart at ease [exclaiming]: "Hammurabi indeed is a ruler who 
is like a real father to his people ... he has established prosperity for his people 
for all time, and given a pure government to the land." . . . 

In the days that are yet to come, for all future time, may the king who is in 
the land observe the words of righteousness which I have written upon my 
monument! 

It is revealing that at a time so long ago a leader existed with both the 
purpose and ideas to establish a code which did honor to him and the 
people he ruled. One cannot help wondering what greater progress might 
have come had he lived long enough to teach other men the merit of 
his ambition. 

This unifying legislation was but one of Hammurabi's accomplish- 
ments, and through his boasting, we hear the voice of statesmanship: 

I dug the canal which bringeth copious water to the land of Sumer and Akkad. 
Its banks on both sides I turned into cultivated ground; I heaped up piles of 
grain; I provided unfailing water for the lands. . . . The scattered people I 
gathered; with pasturage and water I provided them; I pastured them with 
abundance, and settled them in peaceful dwellings. .■ 

Hammurabi was clever enough to gild his authority with the approval 
of the gods. 

He built a massive granary to store up wheat for gods and priests. He 
expected the awed obedience of the people in return. From their taxes, 
he financed the forces of law and order. Palaces and temples rose on every 
hand; a bridge spanned the Euphrates to let the city spread along both 
banks; ships manned with ninety-men crews plied up and down the river. 
Two thousand years before Christ, Babylon was already one of the richest 
cities known to history. 

The waters of the rising rivers were not allowed to flood the land as in 
Egypt; on the contrary, every farm was protected from inundation by 
ridges of earth, some of which can still be seen today. The overflow was 
guided into a complex network of canals, stored into reservoirs, sluiced 
into the fields as needed. 

So watered, the land produced a variety of cereals, great orchards of 
fruits and nuts, and above all the date. From this beneficent concoction 
of sun and soil, the Babylonians made bread, honey, cake, and other 
delicacies; they mixed it with meal to make one of their most sustaining 
foods; and to encourage its reproduction, they shook the flowers of the 
male palm over those of the female. 

Trades multiplied and became diversified and skilled, and as early as 
Hammurabi, industry was organized into guilds (called "tribes") of mas- 



^o THE MANAGING FUNCTION 

DC 



ters and apprentices. Thus, with growing skills, the artisans produced a 
surplus o£ goods and gave birth to greater commerce and trade. 

Countless caravans brought to the bazaars and shops of Babylon the 
products of half the world-from India, Ecbatana, Egypt, Palestine, from 
Asia Minor through Tyre, Sidon, and Sardis to Carchemish, and then 
down the Euphrates. Babylon became a thriving and noisy market place. 
Babylonian Heritage. These were some of the developments which de- 
scribe the society which began to require management skills. It was es- 
sentially a commercial civilization. Most of the documents which have 
come down from it are of a business character-sales, loans, contracts, 
partnerships, commissions, exchanges, bequests, agreements, promissory 
notes and the like. There is abundant evidence of wealth and a certain 
materialistic spirit that managed, like some later civilizations, to reconcile 
piety with greed, and in the literature, at every turn, there are reminders 
of the slavery that underlies all the ancient cultures. 

The power of the king was limited by the law and the aristocracy and 
by the clergy. The king was not really king in the eyes of the people until 
he was invested with royal authority by the priests. Much history was to 
be written before the management principle of undivided and hxed 
authority and responsibility could be accepted. 

The influence of the priests with the people was ultimately greater 
than that of the king, and they might depose him if they set their com- 
bined abilities to this end. Oddly enough, the observation can be made 
that checks and balances to absolute power existed in this ancient time. 
The king and supposedly the chief executive officer had to answer to the 
priests, and through them to the people, just as in the modern world the 
general manager and chief officer must answer to the board of directors 
and through them to the people (the stockholders). 

The records seem to tell us that as long ago as 2000 B.C. men .x-ith 
responsibility for leadership were creating policy and experimenting .vith 
principle that grew out of their need to manage people m their relation- 
ships The effort of Hammurabi was undoubtedly not original. Some ot 
his ideas probably came down from earlier years, in which the problems 
of dealing with people and nations had been discussed for generations 

by tribal leaders. i • i • j 

An impressive list of ideas which Hammurabi set forth for his kingdom 
was lost, and progress was interrupted for hundreds ot years. No one 
looking at the ancient site of Babylon today would suspect these hot and 
dreary wastes along the Euphrates were once the rich powerful capital 
of a civilization that almost created astronomy, added richh to the 
progress of medicine, established the science of language, prepared the 
first great code of law, taught the Greeks the rudiments of madrematics, 
physics, and philosophy, gave the Jews the rudiments ot the beliefs which 



MANAGEMENT THROUGHOUT HISTORY 53 

they gave to the world, and passed on to the Arabs the basis of their 
scientific and architectural lore. 

The Hebrew People 

The achievements of a long line of military leaders could be cited over 
thousands of years, but there is little in the scattered and meager records 
that does not repeat itself. There was management of a sort, but it lacked 
humanity and vision. 

Hundreds of years passed before men came into the world who did 
think deeply, and the record is best told in the Old Testament story of 
Israel. Even so, it is interesting to note that a number of the great heroes 
of the Jews were military heroes. A variety of experience and many 
lessons in human relations and in leadership are unfolded in the story 
of these people and their times. They left an imprint on the thinking of 
all who were to follow them, an imprint which lives even now as an estab- 
lished part of the common moral, if not the religious, principles of West 
ern peoples everywhere. 

The law of the Ten Commandments given to the wandering tribes of 
Israel by Moses has become familiar to all humanity. It prepared the way 
for the teachings of Christianity. 

Little is told of how the ancient Hebrew peoples organized themselves, 
although much is written in the Old Testament of what they did. Tribute 
is paid to the military leaders who guided and preserved them during 
many trials of escape and conquest. The record of Moses shows him to be 
a tower of strength. So great by comparison was his ability in government, 
in lawmaking, and in total leadership that he stands forth as a shining 
example of managerial capacity. 

The preparation, organization, and execution of the exodus of these 
people from Egypt was a heroic undertaking. Among the numerous items 
from this history, the following has a particular bearing on our story. 

You will recall that Moses killed an Egyptian supervisor for mistreat- 
ment of a workman. Moses looked upon people as individuals, above the 
animals; he had a sense of values in human relations and was personally 
enraged by the evils of ignorance and cruelty in the treatment of laborers. 
This is a key to one of his great strengths as a leader. Today this attitude 
translates itself to a management principle. 

As we can imagine, the people Moses commanded produced innumer- 
able problems in their journeys and wanderings. 

The following account is a condensed version of the story, taken from 
the eighteenth chapter of Exodus, which led Moses to form a more efficient 
organization. 

It is reported that Moses had been joined in his immediate circle by 
Jethro, his father-in-law. We can visualize Jethro positioned somewhere 



54 THE MANAGING FUNCTION 

close to a scene in which Moses listened to problems, difficulties, disagree- 
ments, while "Moses sat to judge the people and the people stood by 
Moses from morning unto the evening." Jethro must have been reflecting 
on what was taking place and observing the strain under which his son-in- 
law was working. 

And when Moses' father-in-law saw all that Moses did to the people, he said, 
"What is this thing that thou doest to the people? Why sittest thou thyself alone, 
and all the people stand by thee from morning unto evening?" 

And Moses said, "Because the people come to me to inquire of God. When 
they have a matter, they come unto me, and I judge between one and another, 
and I do make them know the statutes of God and His Laws." 

Jethro responded, "The thing that you do is not good. Thou wilt surely wear 
away ... for this thing is too heavy for thee. Thou art not able to perform it 
thyself alone. Hearken unto my voice and I will give thee counsel. . . . Teach 
them ordinances and the laws, show them the way wherein they must ^salk and 
the work that they must do. . . . Moreover, provide out of all the people able 
men such as fear God, men of truth, hating covetousness, and place such over 
them, to be rulers of thousands, and rulers of hundreds, rulers of fifties and 
rulers of tens. 

"And let them judge the people at all seasons; and it shall be that everv great 
matter they shall bring to thee, but every small matter they shall judge: so shall 
it be easier for thyself, and they shall bear the burden with thee." Moses did all 
that he said, and the hard cases they brought to Moses. 

What we read here is the earliest known record of a philosophy and 
plan for organization. Here is the recognition of the need for delegation 
of responsibility based on "what work was expected of thein," the division 
of responsibility by echelons, the seeking of decisions at the topmost levels 
for only those "cases which were hard to decide." 

This principle is in use today in large-scale enterprise as a matter of 
common sense, but how did a concept we now believe to be so funda- 
mental occur in the mind of a man over a thousand years before the 
Christian era? Had he observed this type of organization in some tribe 
of nomadic peoples, had he seen this kind of organization in some ancient 
village, had he discussed military organization with some unknown war- 
rior leader, or did it just occur to him that day, as he ^watched and 
pondered the problems of Moses? 

Many modern authors have written volumes on the principles of or- 
ganization-structure, position description, fixing of responsibilitv, and 
the delegation of work-but nowhere is there an earlier or a simpler 
record of such fundamental counsel or a simpler statement of how the 
principle itself is applied. 

Moses went beyond this to give his people a credo for conduct and laws 
dealing with human relations. He was separated by over a thousand years 



MANAGEMENT THROUGHOUT HISTORY 55 

from the influence of Hammurabi, and we may imagine that much, if not 
all, of the Decalogue and the Book of the Covenant expressed the growing 
body of common laws by which people were slowly being influenced in 
human contacts. This is not to suggest that people were living according 
to the laws, for we know that nations collapsed, trade routes were unsafe, 
and although there was no permanent conquest, wars continued. But dur- 
ing and between these events, a widened concept grew of rules of conduct 
which would have lasting impact on the spread of civilization. The 
Hebrews scattered among all the nations and countries of the Mediter- 
ranean, and they took their laws and customs with them. They carried 
along the idea of a righteous Creator, a God above all gods. 

Grecian Civilization ., ■ 

It is difficult if not impossible for us to have any understanding and 
perspective for the time required to spread knowledge. Men had too little 
time to create knowledge. They were trying to learn how to escape famine 
and attain simple comforts and to have a little of safety and security. 

It is amazing, in the light of conditions and circumstances, that any 
progress at all was achieved. Life was short. Leaders, nations, dynasties 
fell and were succeeded by new. A few men were learning to accomplish 
large undertakings. They built magnificent temples to their gods, pyra- 
mids for their future life. Fleets were roaming the Mediterranean, taking 
ideas along with the exchange of goods and prisoners. 

Although there was no realization of it at the time, four hundred years 
or so before Christ, something new was happening in Greece. It was to 
shake and reshape the thinking of men for thousands of years to come. 

History became the Greek word meaning "search for true knowledge." 
The idea of preserving details of varied human experience seems to have 
been the invention of Herodotus, born in 484 b.c. He traveled widely, 
recording all sorts of information about places, people, and things, and 
at about the age of forty-six fascinated the Athenians by reciting tales of 
the places and peoples he had visited. He enlarged their ideas of the 
universe. 

When Herodotus traveled to Egypt and Babylonia, he was awed by 
the antiquity of lands and peoples that had been making history for 
thousands of years. He contributed a youthful spirit of inquiry, and in 
him the study of history had now begun. However, the scribes of the East, 
in preserving the royal annals, had eyes and ears only for the deeds of 
their kings; they had neither the inspiration nor interest in recording 
what lay behind or what followed events. 

The great kings must have had some idea that they were making his- 
tory, but they, too, limited their desire merely to impress posterity by 
records of their deeds. It seems that the early Egyptian scribes had no 



Kg THE MANAGING FUNCTION 

word or idea for history in our sense, and apparently no concept of his- 
torical cause and effect beyond the idea that everything depended on 
Pharaoh. The Mesopotamians had no better understanding of it. AVith 
the royal annals they preserved rituals, prayers, and manuals of all that 
had been found "good for kingship." 

But in spite of whatever there was of accumulated wisdom, kings kept 
coming to grief. They developed a rudimentary theory that the gods ruled 
history: a successful king had been favored by the gods; an ill-fated king 
had somehow offended them. The will of the gods remained inscrutable- 
the king himself might never know the nature of his offense. A mighty 
king was always right; an ill-fated one was always wrong but not neces- 
sarily unjust or unrighteous. All were god-fearing in their terms and 
customs. The practice of analysis had to await better knowledge and 
learning, and the application of planning was an undiscovered principle. 
Herodotus did not assume the utter dependence of man on the gods 
or seek anxiously to divine their will or solicit their favor. He treated 
history as man-made. His eager curiosity and acute intelligence coupled 
with breadth and openness of mind led him to travel "for the sake of 
learning, for the sake of inquiry." He revealed the influence of the power 
of customs which moderns have only now begun to learn. 

The Greeks were exposed by their position at the crossroads of Mediter- 
ranean trade to the exchange of material goods and spiritual ideas. Their 
free, curious spirit led them to borrow experiences and kno^vledge from 
other cultures. They adopted the Phrygian flute, the Phoenician alphabet, 
Lydian coinage, Egyptian arts, and Babylonian learning. 

The inquiries of the Greek scholars helped man to realize his humanitv 
and the potentialities which distinguish him from all other animals. 

The Greeks introduced scholarship and science in manv spheres. Then- 
philosophers raised questions which ultimately paved an intellectual 
roadway to the apostles of Christianity. 

Origin of the Scientific Method. Down to Grecian times had come cus- 
toms and institutions, ideas about these customs, and the rights and duties 
of people, passed along by telling about them. It is easy to believe that 
information dispersed by oral communication created a variety of knowl- 
edge some of which must have been in conflict. Greek scholars invented 
ques'tioning-into all kinds of knowledge and ideas. ^Vhether the Greek 
scholars were in search of a better understanding of themselves, of other 
peoples, or of what people were doing, who and what thev were, or how 
they came to be is of no great importance, but that they did inquire 
was and is of the greatest interest, for in these times and under these 
influences, the Greeks discovered the research point of view-the challenge 
of what is right rather than who is right. 

When Thales of Miletus declared, "All things are made of water, it 



MANAGEMENT THROUGHOUT HISTORY 57 

represented an effort by pure reason, without benefit of oracle, to explain 
the universe in its natural terms. It heralded the beginning of natural 
philosophy and science. This was a revolution in thought that eventually 
was to transform man's life on earth. 

For ages in the ancient East there had been plenty of nonmythical 
thought, as evidenced by all the empirical knowledge accumulated in 
agriculture, metallurgy, medicine, mathematics, and astronomy. The 
Greek scholars were very practical men who wanted to know all the 
secrets in order to predict or control the course of nature. Often they 
exhibited a tireless industry in the collection and organization of data. 

In Mesopotamia, particularly, the learned built up elaborate systems 
of divination, astrology, dream interpretation, and demonology, but they 
failed to develop philosophy and science. From the beginning, magic re- 
mained their premise and myth was their conclusion. 

The miracle that took place in Greece was the proposition that natural 
events are not miracles. Oriental thought explained all natural phenom- 
ena in supernatural terms-the gods had made everything so. Thales and 
his followers left the gods out; they began with "the things that exist." 
Greek philosophers assumed that the universe was a lawful order, in- 
telligible in terms of natural causes. Their approach is illustrated by the 
Hippocratic writings. "It seems to me," said a writer on epilepsy, "that 
the disease is no more divine than any other. It has a natural cause, just 
as other diseases have. Men think it divine merely because they do not 
understand it. But if they called everything divine which they do not 
understand, why, there would be no end of divine things." 

This spirit became the foundation of science. Thales foretold a total 
eclipse of the sun (on a day now fixed as May 28, 585 b.c). Heretofore, 
the event had always filled men with fear. Later, Anaxagoras stated 
clearly the natural cause of eclipses and dared venture the bold opinion 
that the sun was not a god but an incandescent stone, quite possibly as 
big as Greece. 

Thales launched the disinterested kind of inquiry which was later to 
become the objective of such men as Galileo, Newton, Darwin, Einstein, 
and a host of others. 

Democracy Evolves. The Greeks developed a new invention in city gov- 
ernment-the polis. We can think of it as the first crude attempt at democ- 
racy. The polis engendered forums in which the people could speak, the 
people could be heard, the people could offer ideas. Here is perhaps the 
very earliest beginning of what we now think of as consultative super- 
vision. Out of this came vivid personalities, individuals expressing their 
thought and feeling. Prior to Greek scholarship, man in the East had 
made himself whatever we may regard him to be, but he did not see 
himself as a maker, as a creator of ideas, of knowledge. 



53 THE MANAGING FUNCTION 

The Greek polls, with its right to be heard and the free exchange of 
ideas, provided the early lessons in democracy. The polis took advantage 
of the basic values of discussion and exchange of information. Greek 
scholarship gave us our earliest beginnings in understanding the concept 
that individualism provides and provokes different responses to the same 
idea or situation. 

The polis provided practice in open discussion, and through it the 
Greeks furnished positive examples and ample evidence of the values not 
alone of what we now think of as "the town meeting," but also of that 
process in managing we have come to refer to as consultation and con- 
sultative supervision. 

Under the influence of Grecian inquiry, man now could begin to realize 
the incalculable and wonderful potentialities of the human spirit. Men- 
even though but a few men-developed a yearning for knowing, feeling, 
striving for, pursuing truth, beauty, and goodness. Although serfdom and 
slavery were indispensable to the rich civic life of the great Greek cities 
of the day, the Greeks were the first among nations to recognize that there 
was such a thing as a public interest. 

The Greek scholars challenged the ideas which came to them. Therein 
is the beginning of what we now think of as "the university," the dis- 
covering of knowledge, and to all men the idea of searching for the truth, 
of working and looking for the better way. 

The Roman Empire 

As we approach the Christian era, the Romans enter the arena. The 
Mediterranean shores and the riches of the Near East were a challenge 
to the Roman legions. Conquering countryside, village, and nation after 
nation, they were ingenious in many respects. 

The Romans established decentralized government so that the problems 
of administration could be dealt with on the spot, so to speak, but thev 
repeated an error in which the rulers of nations thousands of years earlier 
had found themselves trapped. The error was a fault in organization. The 
Roman provincial governments were headed by two men of approximatelv 
equal power-a military and a civil governor-who were not ahs^avs in 
agreement, who contested with each other for ascendancy, ^vho leaned 
on each other if weak, or who could misgovern through indecision ^xhen 

they disagreed. 

Many were the Roman accomplishments-an increase of roads, viaducts, 
and culture. Roadways originally constructed as military arteries served 
for the expansion of commerce; but they also became arteries for the 

spread of ideas. 

While the Roman centurions governed the shores of the Mediterranean, 
the Christian era was launched, and some of the ideas of man's individual- 



MANAGEMENT THROUGHOUT HISTORY 59 

ity which had been voiced and nurtured by the Greeks began to spread. 
The Roman Empire continued to exist for some 400 years after the death 
of Christ. For all practical purposes, the Roman Empire ended in 476 a.d., 
and with its fall the period that is conventionally called ancient history 
came to a close. 



THE PRE-INDUSTRIAL REVOLUTION PERIOD 

Little could anyone living at the time of Christ know that the impact 
of Christian teachings would require so many centuries to loosen the 
chains of slavery and liberate the mind of man. Nearly 2,000 years have 
passed, yet any thought that in free man lay the greatest of all the un- 
tapped riches in the universe is an idea which has only lately been recog- 
nized. 

It was to become plainer and simpler as the centuries passed that con- 
duct founded purely on ethics would not catch and hold the imagination 
and the beliefs of people until it was lighted by faith in men, in their 
being, and in an innate capacity to contribute to all that was about them. 
This process is still going on, but meanwhile our story moves forward 
through ages of conflict and conquest as the peoples of Medieval Europe 
tried to find themselves. 

New organizations were striving to learn the processes of managing 
people and governments. The story is replete with both short-term success 
and long-term failure. Feudalism gave way to nationalism, but national- 
ism, confused by ignorance and avarice, produced continuing wars and 
destruction. The means and the forces for education were too meager 
to be felt. Civilization spread. Each trial was followed by some advances. 

As centuries passed, ideas moved slowly, and life went forward, with 
a few stalwart thinkers patiently trying to balance old ideas and ways 
against the new. Ideas concerning man as a human being took root only 
to be uprooted. Pioneers who had thought about the world, its physical 
nature and being, were scoffed at, but although people died for their 
ideas, their words spread. The seeds of their learning fell upon new 
ground. 

About 1440 A.D., with the use of movable type, printing began in 
Europe. This was a determining factor in speeding the spread of ideas 
and the means for recording and spreading knowledge. What men knew, 
they could record; ideas and learning could be circulated more widely. 
We can well appreciate that printing permitted men to express them- 
selves about ideas. Rapid advances were made in influencing the thinking, 
the attitude, and the responsiveness of the people. They were no longer 
narrowly limited. 

Industry and commerce, of course, continued to develop and expand. 



rjQ THE MANAGING FUNCTION 

And it is interesting to note that the origin of modern bookkeeping can 
be traced back to 1494. In that year, Luca Paciolo, a Franciscan friar of 
Venice, published a system which he had been using in his tutorial work 
and which was, in fact, in common use in many parts of Italy. English 
traders were not slow to follow, for fifty years later we find this book 
translated into English by Oldcastle and published in London. 

By the end of the seventeenth century, the principles and practices of 
double-entry bookkeeping, in virtually their modern form, were widely 
known among the trading community and had, in fact, become the ac- 
cepted technique of control in the management of the merchants' affairs. 

There were large amounts of capital invested in industry as well as 
commerce long before the eighteenth century. Even so modern a phe- 
nomenon as mass production was not unknown in some fields before the 
Industrial Revolution in England, but life was essentially primitive. In 
general, during the entire period from the fall of the Roman Empire 
until the Industrial Revolution, little change can be noted in manufac- 
turing processes. The "putting-out system," in which merchants provided 
the raw materials and master craftsmen provided their skills, was m 
common use. Home arts and home industry flourished as a part of the 
livelihood and alongside a peasant economy. But when James ^\ att 
demonstrated his steam-powered pump on March 8, 1776, the world was 
changed; home life and the countryside methods of manufacture became 
obsolete, and so also did some methods as old as the Middle East. 

THE AGE OF INDUSTRY 

The latter half of the eighteenth century was a period of violent 
change. The Industrial Revolution began in earnest with the invention 
of the steam engine by Watt. Rapid industrial change brought violent, 
miserably disruptive economic and social changes. 

The period was one of violent political upheaval as well. The Ameri- 
can Revolution took place, and the Declaration of Independence set forth 
basic principles concerning the inalienable rights of people. In France, 
too there was a revolution as the common people strove to throw off the 
rule of the aristocracy. The significance of these events was to affect people 
not only as citizens, but also as employees. The influence would be pro- 
found upon those whose work consisted in managing. AVestern nations 
and peoples were striving to reach upward and away from subjection and 
servitude. 

The Industrial Revolution in England 

With the advent of steam power, the factory came into being. A single 
steam engine could power dozens of machines, and the new industry 
started to crowd the new machines in. Eyes and hands were no.v needed 



MANAGEMENT THROUGHOUT HISTORY 61 

more than master craftsmen. Even children could do many of these 
chores, and the new manufacturers sought them out. The new system 
moved the servitude of children from home to factory, and a kind of 
slavery was continued. 

The machine which could have brought release brought an increase 
of servitude. The evils of slavery crept into the new factories. Apprentices 
had been legal wards of the government, but free children belonged to 
their parents. The world of industry was a jungle in which only the fittest 
survived. The average industrialist gave thought to one thing— maximum 
production at minimum cost. 

With the relocation and expansion of industry, whole new towns sprang 
up in the textile and metal industries. The new towns were unable to 
handle both the number and the kinds of new problems of local govern- 
ment. As the industries expanded there was an uncontrolled growth of 
town life, which became hideous and squalid. Some of the mill owners 
were revolted by the working conditions, but in the absence of legal curbs, 
competition forced all of them to exploit the workers. 

In 1776, the very year James Watt installed his steam engine, a book 
bearing the title The Wealth of Nations appeared. It was the work of 
Adam Smith, a professor of moral philosophy. A distinguished company 
of economists later arose to amplify Adam Smith's ideas. 

In the popular understanding, Adam Smith's doctrine was one which 
justified in principle what the industrialists and entrepreneurs were 
doing in practice. The businessmen felt the necessity of showing that 
capitalism was right as a matter of principle. They had to prove that in 
cleaving to it, they were not doing good for themselves alone, but for all 
mankind. They were glad, therefore, that new scholars provided both 
argument and proof. These new scholars proclaimed that laws function 
in economics no less than in physics or chemistry, e.g., a law equalizing 
supply and demand, another regidating rents, another influencing and 
controlling wages. An old French phrase became the popular motto: 
"Laissez jairel" ("Let Them Alone!"). The relentless pressure of com- 
petition would control efi:ects and events. The employer who was too 
greedy and tried to underpay his workers would soon find them drifting 
off to his rivals. 

The profit system was all the sounder because it was a profit-and-loss 
system. Bankruptcies, foreclosures, and panics were a healing medicine. 
Disaster purged the business world of the reckless and the unfit, serving 
to make such catastrophes less and less possible. The thinking was that 
eventually only the most competent would be left in control, and then 
all would be well. There would be steady profits for all the employers, 
steady work for all the employees, and a steady flow of goods for all 
mankind. 

Parliament in these times was controlled by the landed aristocrats, who, 



52 THE MANAGING FUNCTION 

as a class, had little understanding of the new industrialists. Nevertheless, 
as between the latter and the common workers, the French Revolution 
had just shown them what could happen when the people got out of 
hand, and they knew what side to take. In 1799, the lawmakers decreed 
that any workman who conspired with any other workmen to extort an 
increase of wages, or a decrease in hours, was liable to three months in 
jail. Further, if any workman so much as attended a meeting called for 
the purpose of plotting such extortion, or if he urged any other workmen 
to attend such a meeting, or if he gave aid to the family of any workers 
convicted for attending such a meeting, or if . . . , or if . . . , then he 
was likewise liable to three months in jail! It is not surprising that the 
strikes might cease, but the grievances remained. Want and squalor and 
disease and resentment remained unmitigated. 

The new industrialism was specialized and unbalanced, for the most 
part confined to textiles and ironware. Therefore, there was created a 
surplus of certain goods, a surplus that could be sold abroad, and before 
long England's foreign trade began to boom. 

In 1808 the British opened up Spanish America, a virgin market, to 
their trade. Had they taken time to make inquiries, they would have 
discovered that South America was still largely a jungle. ^Vithin a few 
weeks, more cotton goods were dumped into the Port of Rio than the 
entire region had used in nearly a generation. The final outcome, of 
course, was ruin. The adventure ruined the merchants who had chartered 
the vessels, ruined the manufacturers who had produced the wares, and 
ruined the bankers who had advanced the funds. There was a small panic 
when word of the fiasco got back to England. Banks in London slammed 
their doors, and mills in Manchester padlocked gates. Only churches- 
and the grogshops-found much need to stay open. That sort of thing 
happened over and over again. 

For more than twenty years, from 1792 to 1815, there was virtually 
incessant fighting in Europe. When the fighting was intense, the mills 
worked day and night; when it slackened, they fell idle. Boom and 
slumps; so it went for two mad decades. War was a bonanza for the 
manufacturers. All they could produce they could sell. 

In 1815, Napoleon was felled and the demand for goods stopped 
abruptly. By that time hundreds of thousands of the working class were 
housed in towns, where they subsisted entirely off industry. Once industry 
foundered, they were stranded. Lacking money to pay the rent, thev were 
put out on the streets. They could do nothing but starve. 

Pioneering Steps in Management. The entire development from home 
industry to factory, the change from small family groups or intimate 
workshops to large-scale enterprises, was so fast, so tremendous in its rate 
of change, that it could not only produce great social consequences and 
practices which we look upon as most unfortunate, but also changes in 



MANAGEMENT THROUGHOUT HISTORY 63 

the way men thought about how to get work done. The industrial up- 
heaval and the changes in society produced changes in the way men 
thought, and this was a process which went on for 125 years or more. 
Within any one generation, there was little change and only small im- 
provement in any direction. There were, however, among the rising group 
of entrepreneurs and industrialists thoughtful men— men who not only 
had ambition for their business but who also felt a desire to improve their 
people. Most of them are nameless; some stand out so sharply as to bear 
special mention. 

In 1796, the Soho Foundry of Boulton, Watt, and Company was 
opened. The foundry was managed by Matthew Robinson Boulton and 
James Watt, Jr., son of the inventor of the steam engine. Many modern 
management techniques were anticipated by Boulton and Watt. They 
pioneered the idea of a fund, to which all employees contributed, from 
which agreed sums of sickness benefit would be payable. A committee of 
employees was given full control of the fund, and among their tasks was 
the obligation to visit the sick in their turn or forfeit sixpence. 

Boulton and Watt employed work study and introduced a system of 
payment by results. A very advanced production-planning system which 
included the preplanning of operations, the routing of work, and the 
analysis of operations was used. They also employed a cost-accounting 
procedure which, it was claimed, enabled them to calculate the cost and 
profit on each steam engine manufactured and the profit and loss on each 
department. 

In New Lanark, Robert Owen, a self-made industrialist from small 
beginnings, instituted some rather radical changes in factory manage- 
ment. Owen had come to the conclusion that human beings behaved as 
they did "not because of their nature but their nurture." If, for example, 
mill folk were prevailingly vicious, it was not because they were born 
vicious. No, said Owen, it was because they lived in a vicious environ- 
ment. He renovated the mills, improved the housing, cleaned up the 
village streets, and opened a store where sound merchandise was sold 
practically at cost. He was able to accomplish much in other directions. 
Most important of all, he established a school. It was an extraordinary 
school because, though intended for the children of workers, it lacked 
all taint of piety. The one aim of instruction was to develop and keep 
happy minds in clean and healthy bodies. And, in part through the 
pupils, Owen tried to influence the parents. He sought to make the latter 
take an interest in their work and develop a pride in themselves. His 
efforts paid. The more he spent on what his partners considered extrava- 
gance, the handsomer were the dividends he produced. Within ten years 
Owen was able to pay back the entire original cost of the mills plus 
interest at 5 per cent. 

Concern for employees as individuals was a management innovation. 



54 THE MANAGING FUNCTION 

Rumor of the marvel spread far and wide, and many important people 
came to see the Owen operations for themselves. One was no less a per- 
sonage than the Grand Duke Nicholas, later Czar of Russia, and he, like 
the rest, went away greatly bewildered. When O^ven published a book 
on his educational theories in 1813, Napoleon himself found time to read 
it and scribble favorable comments in the margins. John Quincy Adams, 
then the American Ambassador in London, sent copies of the book to the 
governors of all the states in the Union. "Mr. Owen, the philanthropist" 
grew to be a world figure. 

Progress in personnel administration was at its early beginnings. ^Vit- 
ness to this is found in Owen's major early reforms. He advanced the 
minimum working age from ten to over twelve years, reduced daily hours 
of work to 1034, provided proper dining facilities and services, and im- 
proved the condition and arrangement of workshops. 

Social Reforms. Before the Industrial Revolution, making and selling 
had been a home industry and had been confined to local markets. Those 
who did the making and selling belonged to guilds. Each tradesman sub- 
mitted to restrictions, and this ensured a certain amount of common 
security, but in this new age the merchants and manufacturers were com- 
pletely on their own. It became apparent that restrictions of some form 
were required. After many years of agitation, in 1817, Parliament ap- 
pointed a select committee to inquire into "ways and means of doing 
something for the poor. Finally, in 1819, regulation of child labor became 
a law. But even then, nothing was said about working in the mines. The 
new enactment applied solely to the cotton mills. And there its most 
drastic provision prohibited the employment of children under the age 

of nine. 

There was agitation against the law of 1799 ^vhich forbade labor to 
combine and strike, and after getting this rescinded in 1825, the move- 
ment set out to organize militant unions throughout the country. The 
unions enabled workers to stand up to the mill o^vners, and cooperatives 
gave them a way to hold down the shopkeepers. Some of the poor ceased 
to be meek. Labor was on the march. The labor leaders kne\v better than 
to use only the threat of violence. They realized that the Avorkers had to 
wrest the right to vote. Six million workers, more or less, had been ^villing 
to sign a petition. 

For generations there had been brave talk about liberty, equality, fra- 
ternity, and the right to happiness, but so long as wealth remained scarce, 
power was easy to monopolize, and tyranny was therefore hard to over- 
throw. The new creed, however, insisted that what counted was not 
birth but worth-and what a man was worth could best be measured by 
how much money he had managed to save. 

In the urge to multiply machines, businessmen had provided the people 



MANAGEMENT THROUGHOUT HISTORY 65 

with almost limitless means to health, wealth, and power. Business and a 
growing industry had blasted the very foundation of feudal despotism 
and set up a new order based on equal rights for all who could grab them. 
They had overturned politics, converting the state from an effective 
agency of restraint to a guarantor of liberty. They had uprooted millions 
of rural laborers and turned them loose in towns. They provided women 
with means of support outside the home and therewith cracked the age- 
old tyranny of male over female. An imperative need for wider literacy 
had been created; workers simply had to be able to read. And thus was 
assured the eventual establishment of universal education. They had 
crisscrossed country and continent with rails and wires and narrowed the 
seas with cables and steamboats. They had carried commerce throughout 
the world. 

New inventions continued to crowd in, year in and year out. More and 
more of such improvements appeared, and they continued to change the 
old face of the domestic system. 

Britain began to sell machines and finance purchasers. By 1830, Bel- 
gium could boast of industrial centers, but not France, Germany, or Italy. 
England had a head start. 

Times improved as the new industrialism made progress. It spread 
wealth in a sense and increased the supply of goods so that, by 1830, Lord 
Macaulay could rise in Parliament and boast that "our houses are filled 
with conveniences which the kings of formei times might have envied." 
And even the poor came in for some share of the stream of goods. 

In one of the publications of the Society for the Diffusion of Useful 
Knowledge, "The Results of Machinery," this interesting comment was 
made: "Two centuries ago not one person in a thousand wore stockings; 
one century ago not one person in 500 wore them; now not even one 
person in a thousand is without them." 

But a crash in 1847 ended the boom, and in that same year Parliament 
passed the Ten Hours Act. And although it took nearly a century, factory 
legislation and inspection were gradually extended to other industries. 
Trade unions obtained full recognition in England in 1867. 

The industrialists had been so busy struggling to get ahead that they 
had no time to watch what was stirring among those they were leaving 
behind. Hostility to capitalism had been brewing on the Continent for 
fully a generation, and the voice of Karl Marx rose to disparage the hopes 
and promises of capitalism. A new social force seemed to be sprouting 
from little printing shops in a dozen different places. Literature about the 
rights of labor, the crimes of capital, and the virtue of that idea called 
socialism was beginning to spread. 

Status of Management. What part did effective management play in the 
Industrial Revolution? Were the manufacturers of the times management- 



nc. THE MANAGING FUNCTION 

conscious? If by this is meant whether they were aware of the existence 
of a science or art of management, the answer can only be no. But if the 
question is, did they recognize the need for effective executive control 
that is distinct from technical competence, then the answer most cer- 
tainly must be yes. In fact, there is every argument for the belief that 
management, in the sense of "control," must have been one of the im- 
portant considerations in the industrial progress of the revolutionary 

period. 

Charles Babbage, viewing industry from without, was able to generalize 
on the basis of his technical training and to present an objective view of 
some of the problems involved. Babbage was not concerned with the 
design or making of machines, but with their use and the organization 
of human beings for that purpose. Significantly, he came upon the belief 
that there were general principles applicable in business and that these 
principles should become better understood since they were of the first 

importance. 

Prior to Babbage's time and for some decades after, however, men 
were too preoccupied with the sheer technical adventure of developing a 
new economy based on power-driven machinery to pay much attention to 
its deeper implications. The excitement of exploitation was more attrac- 
tive than the pains of exploration, unless they were directed to areas 
purely technical and material. 

Almost a half century after Charles Babbage had discussed certain prin- 
ciples of the scientific approach to business management, an American 
engineer, Frederick W. Taylor, offered similar convictions. In England, at 
approximately the same time, Joseph Slater Lewis wrote a book titled 
The Commercial Organization of Factories. The book was an analysis of 
the fundamentals of industrial administration, with special reference to 
the control function. 

Lewis won his place among the pioneers who strove to make industrial 
management recognized, by reason of his clear exposition of a very simple 
truth that has not yet been generally accepted-the fact that the manage- 
ment of industry is a specialized process capable of specific study and, m 
fact, requiring such objective study as an essential condition of compe- 
tence. 

Industry in America 

There were over one hundred years of rapid change, almost explosive 
in terms of the invention and expansion which it had produced for the 
British people. While this was going on in England, a new nation ^vas 
being formed in the Americas. At the very peak of the period of social 
upset and discontent in England, the American colonies determined on a 
course of independence. 



MANAGEMENT THROUGHOUT HISTORY 67 

America had its inception in a search for freedom and attracted to itself 
large numbers of European emigrants who were seeking a new life in a 
new environment and freedom from all the Old World restraints. 

American experiments in government and in economics and social 
progress are still incomplete, but there can be no doubt but that, in the 
American tradition, there is an underlying and cherished desire to achieve 
more fully for mankind a state of development which is fired by idealism. 

The American businessman has been definitely influenced by the cul- 
ture of Americanism itself. 

A restudy of the Declaration of Independence and the Constitution of 
the United States does not fully reveal the essential definition of Ameri- 
canism. Somehow, one must go deeper to find an appreciation of man 
which is spiritual and may never be completely subject to precise defini- 
tion. 

Americanism, even today, expresses the hope which lay behind the 
drives that founded a new nation. These cultural influences have an 
impact on the businessman. The course of our early government was not 
smooth. It was, and still is, one of evolution. It would not have come to 
fruition at all had it not been in the hands of dedicated men, and it is 
still in development, in evolution. 

We can go far back in the history of this government and determine 
that quite early it did not shrink from the duty of adoption of laws which 
introduced government regulation of business. Early in the course of 
American affairs, American management had to learn how to shape its 
growth under the observation and restraints of government. The gov- 
ernment was one progressively more committed to maintain a watchful 
eye for public protection. 

The importance of these influences in the development of management 
in this country may not be entirely clear. As a part of the environment, 
they are elements of conscience which the American businessman was 
required to develop and cultivate from the inception of the nation and 
without cessation. 

Even as the War between the States ended, the need for new adjust- 
ments was very evident. The nation as a whole was trying to accommodate 
itself to industrial changes which had begun during the war. For example, 
at the Cotton Exposition in Atlanta, in 1881, there was on display cotton 
cloth, 8 yards of which could be made by a weaver working ten hours a 
day at a hand loom, and in this same exposition, there was the machinery 
of modern mills which would change the home crafts industry of the new 
American nation. These new modern mills could produce 800 yards per 
day under the care of one weaver. 

As far south as Birmingham, Alabama, there were the smoking chimneys 
of new ironworks, and in the East and North and Central West, there were 



gg THE MANAGING FUNCTION 

arising new commercial and industrial cities, keeping pace with a supply 
of goods to meet the needs of a rapidly rising population. 

To supply the employees for this increase of industry, the doors of 
immigration stood ajar for years, while the poor of Eastern Europe and 
many among the British filled the need for workers. The vast majority of 
these people were not only poor, many were ignorant, and some indus- 
trialists looked upon them as if they were slaves. New steel mills rose, the 
railroads extended their courses, and coal was mined in increasing quan- 
tities as the nation grew. 

The new nation had come a long way by 1900, and at the dawn of the 
twentieth century, we were 76,000,000 people. The empire builders had 
pretty much had their own way. The main point seemed to be to get the 
thing done, to develop the country as fast as possible, regardless of how 
it was done or what the larger social obligations might be in the doing, 
and it was pretty much this attitude which guided some of the greatest 
industrialists in the latter half of the nineteenth century. 

Referring to the mightiest men of industry and finance, James Truslow 
Adams says, "With this spirit went an autocratic belief in their own right 
to rule the people, to develop the country when and where it suited their 
own convenience, by methods of their own choosing, and to prevent anv 
interference of any sort with their own plans; in a word to become 
benevolent despots." 

Not all men were monopolists or magnates. A great majority were men 
of simple means and minds, and there were many among these who ^s'ere 
challenging and questioning to determine which principles should be the 
guiding ones for business management. Foremost among this group of 
pioneers of industrial management was Frederick AV. Taylor. 

Frederick W. Taylor completed his machine-shop apprenticeship in 
1878 and joined the Midvale Steel Works in Philadelphia as a machine- 
shop laborer. He became successively shop clerk, machinist, gang boss, 
foreman, maintenance foreman, head of the drawing office, and chief 
engineer. 

Once Taylor was on the side of management, he set to work with 
unflinching loyalty to see that every man under him did a fair day's work 
-an output which he knew from his own experience at the bench could 
be secured without undue strain. It was not a pretty struggle. A machine 
shop of that date was no kindergarten. Taylor was challenging ^vhat his 
fellow workers regarded as the inalienable privilege of setting their own 
pace. 

Management left the question of output almost entirely up to the men, 
relying on various forms of wage incentive, or even mere ganging by 
foremen to achieve what was reasonable. They set rates crudely and cut 
them even more crudely if some workers produced more and started to 



MANAGEMENT THROUGHOUT EHSTORY 69 

earn big money. There was not a hint of real fact finding, of precise and 
accurate knowledge, about the whole business. 

What Taylor did was not to invent something quite new. He systema- 
tized into philosophy ideas which had been gathering force. His outlook 
was largely limited to production and primarily to machine-shop practices. 
It was left to others to extend his philosophy to other functions, and 
especially to Henri Fayol, a Frenchman, to develop logical principles for 
the administration of a large-scale undertaking as a whole. It must be 
concluded, nevertheless, that the emergence in the twentieth century of 
a science of business management was an achievement which owed more 
to Frederick Taylor than to any other single man. 

EVOLUTION OF MANAGEMENT CONCEPTS 

Although it is difficult to trace exactly the step-by-step development in 
the practice of management through the lost ages of the past to the 
present, it is nonetheless clear that progress has been climbing a ladder 
of social perception. Lawrence A. Appley, able president of the American 
Management Association, has stated this process in simple steps: 

Savagery: The other fellow is my enemy and is to be destroyed. 

Slavery: The other fellow is to be conquered and put at my service. 

Servitude: The other fellow is to serve me for a consideration and ask 
no more. 

Welfare: The other fellow should be helped up when down, without 
too much concern for what got him down. 

Paternalism: The other fellow should be cared for, and I will decide 
to what extent. 

Participation: The other fellow has something to contribute to my 
efforts and can help me. 

Trusteeship: That for which I am responsible is not mine. I am de- 
veloping and administering it for the benefit of others. 

Statesmanship: The other fellow is capable of being far more than he 
is, and it is my responsibility to help him develop to his fullest potential. 

The story of the development of management is essentially the story 
of mankind. In Table 2-1, some important early events leading to the 
development of management as an art and science are listed. 

As soon as men began to gather in large groups and create cities, the 
need for an orderly system of conducting business transactions was recog- 
nized. The earliest record of such a system is the Code of Hammurabi, 
which was developed approximately 2,000 years before Christ, but it, in 
turn, was probably based on customs, laws, and practices which were even 
then centuries old. 

The need for some type of organization so that the activities and con- 



70 



THE MANAGING FUNCTION 



dust of large groups could be controlled was also recognized early in 
man's history. Jethro's advice to Moses is a startlingly clear statement of 
principles of organization. Many centuries were to pass, however, before 
the true value of these principles came to be recognized. 

Table 2-1. Early Events of Significance in the Development of Management 



Approximate 
date 



2150 B.C. 
1200 B.C. 

800 B.C. 
50 B.C. 

1500 A.D. 

1795 A.D. 

1810 A.D. 

1895 A.D. 



Geographic 
location 



Babylon 
Palestine 

Greece 

Roman Empire 
Italy 

Great Britain 
Great Britain 
United States 



Event— significance to the development of 
management 



Code of Hammurabi-basis of many business and 

legal practices commonly used today 
(Exodus, Chapter 18) Jethro's advice to Moses 

-the earliest record of a philosophv and plan 

for organization 
Recognition of the value of the individual: the 

scientific method 
Decentralization of authoritv and responsibilitv 
Publication of a system of bookkeeping bv Luca 

Paciolo-the beginning of modern accounting 

practices 
Boulton, Watt and Companv-first illustration of 

"scientific management" in action 
Pioneering work of Robert Owen in the field of 

personnel administration 
Writings and activities of Frederick ^V. Tavlor. 

"Father of Scientific Management" 



The Greeks caught a glimpse of the scientific method. To a student of 
management, a recapitulation of the chief elements of the scientific 
method, as outlined by Stuart Chase, serves to demonstrate how ne.v 
knowledge is brought forth: 

1. A problem to be solved which bothers somebody, maybe cosmic rays, mavbe 
juvenile delinquency. 

2. Gathering the available facts about it, searching the literature. 

3. A theory to explain the problem, a patterned sketch. 

4. A rigorous verification of the theory by other scientists. Emotion and bias 

ruled out. 

5. A stubborn atmosphere of doubt. The cheerful ability to say, I was 

wrong." 

6. Prediction in terms of probabilities, not absolutes. 

7 Thinking more in terms of process than of linear cause and effect. 

8 Thinking in terms of structure. How things are related to one another: 
the order in which they come-the structure of a skyscraper, a corporation, a 
community, a conference, an argument, an agenda. 

9. No closed solutions; room always allowed for new data ^vhlch mav give a 

closer fit. 



MANAGEMENT THROUGHOUT HISTORY 71 

10. No secrets, no monopolies, no pay-offs. The storehouse open to all men 
everywhere. 

Today we know that experiment can only be answered by more careful 
experiment. Scientists realize that a serious task of applied science is to 
recognize and repair some of the dislocations of technology, and scientists 
stand like a team of acrobats on one another's shoulders. The life work 
of hundreds of scientists would have to be included in the account of the 
development of atomic fission extending backward for 150 years. It would 
give a picture of science as a continuing process, one discovery leading 
to the next. 

Similarly, any body of knowledge consists of a long ladder of individual 
ideas and their application and development. 

It has been said that man's progress follows a compound-interest curve. 
Each generation hands down more and more knowledge to each succeed- 
ing generation. Hence, if the number of inventions from the beginning 
of recorded history to the present time could be plotted, the resulting curve 
should rise slowly, and then more and more steeply. 

In a paper published in 1947 Harvey C. Lehman 1 has shown that this 
is the case in many fields of science. In his paper, Mr. Lehman plotted 
contributions to chemistry, genetics, geology, mathematics, medicine, 
pathology, entomology, and botany for the past three or four centuries, 
on a twenty-five-year time scale. They all show the typical compound- 
interest curve. 

It seems safe to state that the development of management has followed 
a similar path. A qualitative illustration of this development is shown in 
Figure 2-1. If we consider the state of management at the beginning of the 
Industrial Revolution— or approximately 1750— we can see that it is at its 
earliest beginnings. Little more is available to the industrialist of 1750 
than accounting procedures and basic rules for the commercial conduct 
of business transactions. The development of steam power made large 
factories practical. The need for some form of executive direction and 
control became apparent as the size of the manufacturing unit increased. 
Here and there men experimented in an effort to determine the most 
effective ways of coping with the technical and human problems they 
faced. 

Communications were weak, and understanding was feeble and limited. 
A century passed, and with a few notable exceptions, the industrialists 
conducted their affairs in much the same way as they had in 1750. But 
slowly some of the gains which had been made were consolidated, and in 
the last fifty years of the nineteenth century, men on both sides of the 

1 "Exponential Increase of Man's Cultural Output," /ourna/ of Social Forces, March, 
»947- 



'7^ THE MANAGING FUNCTION 

Atlantic Ocean came to realize that there were both an art and a science 
of management. 

A search for principles of management on which men could agree 
began. In 1881, Joseph Wharton, a Philadelphia merchant and manu- 
facturer, gave $150,000 to found a school for higher commercial training 
at the University of Pennsylvania. This started a movement in education 
which was taken up by colleges and universities throughout the nation, 
and, in 1908, the first graduate school of business was founded at Harvard 
University in Cambridge. 




1925 



1950 



1750 1775 1800 1825 1850 1875 1900 

Fig. 2-1. Development of management from the beginning of the Industrial Revolution. 

As the nineteenth century closed, Frederick W. Taylor gave forai to the 
work of early pioneers, and "scientific management" was born. Since that 
time the practice of management has developed at an amazing rate. Cer- 
tainly, it seems safe to state that more progress in the development of 
management as an art and as a science was made in the first fifty years of 
the twentieth century than in all the history of man through the ages 
past. 

EMERGENCE OF MANAGEMENT AS A PROFESSION 

In the United States, we have entered a period of professionalism in 
management which has been emphasized by the fact that great familv 
enterprises of the early days have become publicly o^vned, and men ^vho 
operate these businesses are employed by the stockholders-hired man- 
agers-and as such they are required to balance out day by day the interests 
of consumers, employees, and owners. A concept of management re- 
sponsibility which is ever growing and widening encompasses how to 
produce a profit so that the company may have continuity, safety, and 



MANAGEMENT THROUGHOUT HISTORY 75 

security; how to maintain growth so that the enterprise will have not 
only an economic but a social reason to stay alive and to keep growing; 
and how to produce security which will safeguard and strengthen the 
efforts of the organization. In the conduct of these affairs, the manager 
must continually balance the needs and the rewards among all who are 
parties of interest— the employee, the consumer, the owner, the commu- 
nity, the nation. 

Managing is now seen as a professional occupation, and there are many 
indications of the distance we have come in achieving professional status. 
Certainly the growing concern of managers with the ethical implications 
of their work is a strong example. Managers have seen the need, as well 
as the opportunity, of squaring their function as wielders of economic 
power with the moral values of our heritage and tradition. This is what 
is meant by balancing the needs of owner, employee, public, and con- 
sumer. This may be the manager's major challenge and one from which 
he can neither escape nor be excused. 

The recognition of moral values places emphasis on integrity as the 
prime characteristic in a leader; this is the quality which makes people 
want to trust him. Although creativeness, imagination, and drive are 
requirements for managerial leadership, the nature of the responsibility 
suggests that the best men won't work just for money. They will only 
work for their beliefs. The idea is growing that if the man can be bought 
he isn't worth the buying. 

We have come so far as to recognize that the science of management 
is a thoughtful, organized, and human approach to the performance of 
the management job as contrasted with a hit-or-miss, rule-of-thumb ap- 
proach. 

There is a vast body of knowledge available to people in management 
which records attitudes, principles, skills, and tools. 

Management is a science, a profession, and an art. 

There is no more reason to expect men in management to become pre- 
pared and to keep informed without organized and methodical effort 
than for men in any other profession, art, or science. 

The professional manager is an individual who, because of his train- 
ing, experience, and competence, is employed to develop and expand 
the assets and realization of owners. The professional manager does not 
even have to be an owner or a partial owner. It is commonly believed 
that sharing to some extent in the ownership of a business increases the 
incentive for the professional manager, but it is not a requirement. 

This Handbook is about the subject of management— professional man- 
agement—and it will borrow from many students and practitioners to 
bring many of the best ideas before men who are anxious to qualify and 
to succeed. 




w.w.^^ 




Earle A. Chiles 

\ .^ ■*''< PRESIDENT 

P * ' FRED MEYER, INCORPORATED 

|\s ^ J||t PORTLAND, OREGON 

Earl A. Chiles, president of Fred Meyer, Incorporated, has made ex- 
tensive use of the tools of scientific management in the firm he heads 
and, through active participation in the Western Association of Food 
Chains, has done much to introduce these concepts into a large seg- 
ment of the retail industry. 

After graduating from the University of Oregon with a Bachelor of 
Science degree in ip2y, he went to work as an extra employee for Fred 
Meyer, Incorporated, at that time a small grocery and variety chain. 
Two years later he entered the Harvard University Graduate School of 
Business Administration and graduated in ip^i. 

He returned to Fred Meyer, Incorporated, and began full-time em- 
ployment with the company in October, ip^i. A short time later he 
was placed in charge of the laundry and cleaning sections of the com- 
pany. Before long, these sections grew into an extensive apparel op- 
eration, and Fred Meyer, Incorporated, became one of the first food 
chains to "supermarket" clothing. 

As the company grew, Mr. Chiles grew with it. In ig^y he was made 
head merchandiser in charge of all grocery divisions, and when the 
company expanded to include a complete drug and variety operation, 
he was placed in charge of the drug-variety division. He zcas named 
vice president and general manager of the entire organization in ig^2 
and two years later became president. 

Under Mr. Chiles' guidance, Fred Meyer, Incorporated, has grown 
into one of the largest companies in Oregon. Only recently the firm 
further expanded operations in the Northwest through acquisition of a 
small chain of variety stores in Seattle, Washington. In addition, the 
company boasts eight manufacturing plants, most of which make Fred 
Meyer brand-name products. 

Mr. Chiles has been very active in the Western Association of Food 



Photo by Commercial Developers, Portland, Ore. 



74 



Chains (formerly Western States Chain Grocers Association) for sev- 
eral years. He served as secretary of the association in ip^/, ivas named 
vice president in ip^S, and was elected president for the years ip^p 
and ip6o. He is also a former vice president and director of the Na- 
tional Association of Food Chains. 

He is a member of Phi Gamma Delta Fraternity and maintains club 
memberships in Portland, Oregon, at the University, Arlington, Mult- 
nomah Athletic Club, the Aero Club, and the Harvard Club of Oregon. 

A Westerner, having been born in Baker City, Oregon, Mr. Chiles is 
married to the former Virginia Hughes of Cambridge, Massachusetts, 
and has one son. The Chiles make their home in Portland, Oregon. 

April, i960 



CHAPTER 3 

Evolution of the Manager 



The gradual evolution of the manager to his present place in our struc- 
tural society has many wide implications. 

By tracing the history of management, we can see that it has evolved 
from a primitive force to a near science. 

Because I was formally educated for a managerial position from early 
youth, and then found it important to work up through the management 
ladder, perhaps what I say may be germane to this whole broad subject 
which we identify as "management." 

As one intimately associated with retail operations rather than manu- 
facturing, it should be fitting for me to comment quite freely. It is gen- 
erally conceded that manufacturing companies are ahead of retail com- 
panies in what is known as the "more scientific" aspects of management. 
But it is also generally recognized that the retail organizations are ahead 
in the marketing areas of managerial concepts. If you are building a 
locomotive, it is quite necessary that you should get the price you ask. 
But in dealing with fast-moving perishables and thousands of small items, 
it sometimes becomes necessary just to move the merchandise off the 
shelves and even take a loss. Perhaps in the future, locomotives, steam- 
ships, and airplanes may also have to move quickly off their respective 
"shelves" in order to keep all business at a high level and avoid business 
downturns. 

Management Definitions. In discussing the managerial evolution, we 

75 



nn THE MANAGING FUNCTION 

should first define what we mean by the various terms that have been ap- 
plied to management. The only reason for this is that none of us will 
misunderstand the terminology used. 
Webster's dictionary tells us that: 

Management is the "act or art of managing; conduct; control"; or perhaps^ you 
prefer the "judicious use or means to accomplish an end; skillful treatment. ' 

The manager is defined as "one who manages; director"; or "a person who 
conducts business or household affairs with economy." 

The capitalist is "one who has capital; ... a person of large property which 
is or may be employed in business." 

The entrepreneur is "an employer . . . who assumes the risk and management 
of business." 

All these definitions are related quite closely. It is easy to pick defini- 
tions from a dictionary. But let us get to the bedrock of what we mean 
when we say these words. I would prefer definitions something like the 
following, at least for today's usage. 

Management is a trusteeship, unasked for but yet accepted by most 
progressive managers. The manager is one who manages. The capitalist 
is one who owns. And the entrepreneur, who will always be with us, 
regardless of change of system or education, is the one who creates. 

I realize that these definitions are arbitrary, but they seem to make 
more sense than do the definitions drawn strictly from a popular dic- 
tionary. 

In a sense management, the manager, the capitalist, and the entrepre- 
neur are all tied together. Generally, however, we think of them in differ- 
ent times. Chronologically, we might say that management and the 
manager are words of the immediate present. The capitalist is somewhat 
a man of yesterday, although he has by no means actually disappeared. 
The entrepreneur is a man of no particular time. He is one ^\dio we hope 
will always be around in times of crisis when necessity forces management 
to rely on instinct instead of science. Make no mistake about it. there will 
always be room for "feel," or "instinct," in spite of the machines and the 
techniques designed to give us the "one best answer" in our decision 
making. 

The history of most businesses in the United States sho^vs that the 
entrepreneur can be replaced. But it has always been found to be a 
difficult task. Perhaps under a new social system of uniformity and blend- 
ing of classes toward which we seem to be moving, this creator, ^vhom 
we call the entrepreneur, will need a far difterent definition. But the 
entrepreneur, or whatever we may call him, will always be about, help- 
ing to create the very china from which we eat, the bottles from ^hich 
we drink, the thoughts from the books we read, the music to Avhich ^ve 



EVOLUTION OF THE MANAGER 77 

listen. He will still be a part of tomorrow, just as he is a part of today, 
and just as he was a creator of yesterday. 

To be sure, we can replace any entrepreneur with a professional man- 
ager. In most cases, perhaps we should, but let us get our thinking 
straight. Although we have evolved to where we can call upon "profes- 
sional management talent" to manage, we cannot call upon it necessarily 
to create. We do not mean that a professional manager cannot create; 
we mean that the mere fact that he has know-how will not make him 
create. 

In order more fully to understand the manager of today, let us briefly 
investigate his development. 



THE ANCIENT BUSINESSMAN 

Time was when a manager was a most undesirable sort of fellow in 
his country's society. According to the writings of the noted historian 
Arnold Toynbee, the ancient Roman businessman was considered para- 
sitical, to say the least. To get his work done, he employed slaves. He 
worked only to serve his own enrichment. His favorite gambit was to 
follow the Roman army into a conquered country and offer to lend money 
at exorbitant interest rates to the conquered people so that they could 
pay taxes imposed upon them by the conquering Romans. It was known, 
at the time, as "good business." It did not make him particularly popular. 

Outright cheating by the businessman was more or less accepted at this 
time. While Rome was busy conquering most of the civilized world, it did 
not have much in the way of administrative machinery. So it farmed out 
most tasks to individual businessmen, who, for a profit, would do almost 
anything the government wanted done. The businessmen of those times 
were an active lot. They participated in trade, finance, and whatever the 
productive enterprises of those times demanded. They worked very hard 
to earn a profit. To that extent, they were somewhat comparable to the 
small businessmen of today. But there the similarity ends. 

During the great Roman expansion, the problem once arose of getting 
supplies to the army that was fighting in Spain. Since the army had no 
transportation facilities of its own, the government contracted with pri- 
vate shipowners to carry supplies from Rome to Spain. The shipowners 
agreed to do this with the proviso that the government would reimburse 
them fully for any ships and their contents lost at sea. Once these con- 
tracts were signed, the businessman of the day found a source of increased 
profit. He would load an old ship with junk, take it out to sea, and sink 
it. Then he would present a claim to the government for the ship and 
the contents, which were represented as being valuable and costly supplies. 
The pages of history record that although the government knew quite 



78 THE MANAGING FUNCTION 

well what was being done, it paid the claims because enough ships did go 
through to keep the army supplied. 

Thus the wily businessman of the Roman days grew rich, but he did 
not endear himself to the Roman government. When, in time, everyone 
in sight had been conquered, the government tightened up on the busi- 
nessman until the profit opportunities were so reduced that he often 
found it better to go out of business and take a government job. 

In this story, we can see influences on business which we have even 
today. First of all, we discern the influence of the profit motive. Profit is 
the mainspring which gets things done. It always has been. And it always 
will be unless we have a basic change in our social system as well as in 
our educational system. Left alone, however, the profit motive is so strong 
that it has a tendency to corrupt those who are motivated solely by profit. 
When this corruption progresses to the point where it seriously affects the 
welfare of the country, history shows us that the businessman sinks to a 
position of low esteem. 

When such a level is reached, history shows that finally a government. 
influenced by public opinion, steps in and establishes regulations which 
help control the situation. Then we find that honesty, once again, be- 
comes the best policy for business. Ethical business practices become the 
order of the day. This usually continues until war, depression, or some 
other disaster upsets things. Then controls relax, and the cycle starts all 
over again. 

This is not to say that businessmen, or managers, are less or more cor- 
rupt than other people. It is rather to say that they are people. 

We may read history cynically or with optimism. But there are con- 
stantly at work great forces which affect the business community. In manv 
other lands, even today, we find that the businessman is low man on the 
totem pole. For instance, in such lands as Korea, until the mid-twentieth 
century at least, the most highly regarded men were the poets, closely 
followed by the educators. Second from the bottom on the Korean scale 
came the businessman. In the only lower group were the prostitutes. 

In many countries in Europe, a man without a doctor's degree is often 
looked down upon in the community of intellectuals. Yet a doctor's 
degree may not necessarily be a criterion for intelligence or competence. 
It might be a criterion for persistence. It could be a criterion for "educa- 
tional escapism." 

The cycle of ups and downs of the businessman has been repeated 
again and again as nations have risen and fallen. An understanding of 
what business is about and what the managerial task is ^vill help us to 
understand better the forces that influence us as managers in our o^vn 
day and age. Had we followed the creed of the Hindu, "business" and 
"management" would be virtually unknown words. They would brnig 



EVOLUTION OF THE MANAGER 79 

up unknown problems. Yet the magnificent standard of living which 
business and management have brought to America is proof, in and of 
itself, that we must have something. That, I personally believe, means 
more than profit for profit's sake. Although profits may have played their 
part, the management and business challenges which led to these profits 
played a bigger role in the end result. 

Today, we are faced with a mighty challenge. It is a challenge of 
leadership. Shall managers slip back once again to become the Roman 
"cheats" of yesteryear, or shall managers become motivators of new 
thought? 

Where is leadership to come from if it is not to come from the man- 
ager? The government cannot lead; it can only follow the will of the 
majority. Unions cannot lead. The union leaders can only push for their 
special interests to hold onto their own union managerial positions; they 
cannot take into account the standards or interests of the community as 
a whole. 

It follows, then, that only the managers of businesses can truly lead. 
But this leadership must come from enlightened management and man- 
agers, not from the archaic thinking of yesterday. 

THE ERA OF SMALL BUSINESS , 

Most of the history of business in the United States, as well as in the 
rest of the world, is truly the history of the small businessman. We first 
think of him in the classic tradition of the American frontier. He was 
the man with his "shop" in the backyard of his home. 

A few years ago the General Electric Company, in seeking to educate 
its middle managers and foremen in the economic facts of life, produced 
a sound slide strip called "The Story of Caleb Cabot," an early and 
fictitious ironmonger who made pots and pans. 

It is an altogether delightful fable which tells of the growth of Ameri- 
can business in easy-to-understand one-syllable words. 

It begins with Caleb buying his raw materials from a one-man supplier 
and then fashioning them by hand into the kind of pots and pans his 
neighbors wanted to purchase. At that point, he was the "manufacturer." 
After a goodly supply was on hand, he then knocked on his neighbors' 
doors and sold his wares. So he was the "salesman" too. 

But after a time, he found it was necessary to go to the surrounding 
communities to sell his goods. He had to hire an assistant to help him 
make the pots and pans, so that he could spend more time enlarging his 
market. So, suddenly, he was a "manager" because he had an employee. 

Pretty soon thereafter he found that he had to expand his market even 
further. Thus entered the peddler with the traditional pack on his back 



80 THE MANAGING FUNCTION 

following the deer and Indian trails into the forests. And here was "dis- 
tribution." 

Since the peddlers handled the goods of many "manufacturers," sooner 
or later they reported to him that a competitor had produced two-handled 
pots which the frontier women liked better. Caleb studied these closely 
and even improved on them, and then we had "research." 

In the meantime, as the business prospered, more and more people 
were hired, and costs went up. So Caleb borrowed money and bought 
crude machines which would cut down on his labor costs. And, of a sud- 
den, "finance" and "engineering" entered the picture. And "construction," 
too, as he expanded his facilities. 

He also equipped his peddlers with signs to put in taverns which pro- 
claimed "Caleb Cabot Pots and Pans-Best of Quality at Lowest Prices." 
Here was "advertising." But since the tavern of our early day was also 
the community center, tavernkeepers began to buy the pots and pans 
outright and sell them across the tavern bar. They were our first "dealers," 
or "retailers." 

And so the story continues, embracing the whole of early Americana. 
Reading it today, it sounds almost quaint, this simple story of Caleb 
Cabot; but it started something whose end no man can foresee. 

RETAILING — FROM SMALLNESS TO BIGNESS 

Since my own personal background is in retailing rather than manu- 
facturing, it would be amiss if I did not comment upon the marked 
differences which took place as the retail store grew from the corner drug- 
store or grocery store to the giant supermarkets of todav. 

Retailing has just come into its greatest period of gro^vth. Some of our 
largest chains, while on the "big board" on the stock market, are often 
still found to be family-controlled. And many of the medium-sized chains 
are entirely the property of one family, with no stock owned by others 
than those in the "family."' 

It is hard to understand why the great growth of retailing followed so 
far behind that of manufacturing industries. In method, until the thirties, 
most retailing was in the Caleb Cabot stage of development. Of course, 
the great population shift to the suburbs, the improvement of marketing 
and distribution techniques, and many other factors plaved a role in 
bringing about change. When markets were concentrated in the center 
of cities and transportation was slow and uneven, there ^vas hardlv the 
necessity for the great markets of today. 

But I am inclined to believe that the greatest single factor forcing the 
growth of supermarkets was the immense social change which took place 
during and immediately following the depression years. Greater wealth, 



EVOLUTION OF THE MANAGER 81 

spread over a greater population, demanded more convenience and all 
the rest of the things which have paralleled retailing growth. 

Today we have hundreds of gleaming supermarkets for food. But this 
is only the bare beginning. The supermarkets are already branching out 
into many lines other than food. Our own chain, which only recently be- 
came a two-city organization, has just as much space devoted to the mar- 
keting and selling of apparel as to food. We have another division, just as 
large, which sells drugs, medicines, and all variety items that might be 
found in any first-rate drugstore. And we have complete coffee shops 
(cafeterias) in many of our stores. 

Other chains are doing this, too. Only space and real-estate requirements 
in the larger metropolitan areas are preventing faster growth. But 
the trend is on its way. The day of the one-stop supermarket is already 
here. - - - 



THE GROWTH OF THE CAPITALIST 

In industry, the Caleb Cabot type of operation quickly gave way to 
"big business." Hundreds of thousands of small businesses were bought 
out and combined to form giant corporations, the ownership of which 
was concentrated in the hands of a relatively small group. 

The capitalist formerly retained the management of the many small 
enterprises he acquired. He wasn't worried about management techniques; 
he was worried only about profits made. We need not belabor history to 
find the era of great investment. The Harrimans, the Goulds, the Hills, 
and others have left us a lurid history in railroading alone and a legacy of 
more than enough material for many controversial books. The sheer 
power of their money seemed to spell the success of the firms which they 
controlled. 

But somehow, all this power and wealth concentrated in the hands of 
a few wasn't quite enough to get the American Dream into high gear. 
The capitalist, as we know him, was a man with money. He has been 
depicted in cartoons, since the time of Lincoln, as sitting on his money- 
bags looking sourly and challengingly at anyone who happened to pass 
by, were he king, president, or commoner. 

By the 1890s, the capitalist had become the very epitome of all that 
was to be deplored. He was the Scrooge of the era. He owned controlling 
interest in many of the enterprises well known and publicly owned today. 
He was pictured as the male counterpart of Marie Antoinette, who 
shrugged and said, "Let them eat cake." There was, supposedly, no feel- 
ing of public service in the capitalist. (Though Carnegie, once his fortune 
was secure, spent his latter days giving away what he had made, and many 
others after him followed suit!) At least, as the times depict him and as 



82 THE MANAGING FUNCTION 

history has written about him, he was the wolf in sheep's clothing, the 
mortgage forecloser, the unfeeling profiteer. 

This is not true, of course. The capitalist was merely a stage in the 
evolution of the manager. He is probably more to be pitied than scorned. 
Although a far cry from the homespun Caleb Cabot, he laid the founda- 
tions for many modern developments. His world was the world of finance. 
His world was the world of growth. But most important, his world was the 
world of yesterday. That is the important thing to recognize when we 
consider the capitalist— yesterday. 

The capitalist probably understood Kublai Khan best of all, because 
in a thousand Xanadus he did build his stately "pleasure domes." It was 
the vogue of the time. And in deserted mansions now being torn down for 
taxes or occasionally being converted to museums, we can still hear his 
long-gone whispers. 

Need we say more about the capitalist? No doubt, he would think of 
today's "organization man" or "the man in the gray flannel suit ' as some- 
thing insipid indeed. He may be right, of course, but there ^\ill be no 
second chance to prove it. 

THE ROLE OF THE ENTREPRENEUR 

When we think of the role of the entrepreneur, our dictionary definition 
has him as "a person who assumes the risk and management of a business." 
This definition is somewhat pale if popular conceptions are any cri- 
teria. 

What is an entrepreneur really? Saint or sinner? Brilliant or merelv 
daring? A genius or a fraud? I suppose he is none of these things and all 
these things. 

The classical example when we think of the name entrepreneur is 
Henry Ford. 

No more controversial business figure has come along to furnish our 
own and future generations with pro and con opinions on his manv 
abilities. Probably, most evaluations will center on the ^vhole, rather than 
on different periods or times, of his life. To understand his genius fully, 
I think his life must be viewed in separate parts. There was the young 
man, the middle-years man, and the man in his declining years. 

Those who point to him as a poor manager often seem to overlook an 
obvious fact. When the time came when more specialized managerial 
skills were needed, Ford had grown old. Would he not have mastered 
"the managing of managers" had he been younger? 

Let us take a look at R. L. Bruckberger's ^ appraisal of Henry Ford 

1 R. L. Bruckberger, Image of America, trans, by C. G. Paulding and Mrgilia Peter- 
son, The Viking Press, Inc., New York, 1959. 



EVOLUTION OF THE MANAGER 83 

and then investigate the views of Peter Drucker.- Here was a man, some- 
what homespun, who started without capital, cast firmly in the mold of 
the American ideal. The so-called capitalist had begun to fade from the 
picture. His interest had been almost totally financial. Ford was a man 
whose interest did not seem to be financial, and many an anecdote is told 
of his keeping waiting and breaking appointments with such financial 
giants of the day as J. P. Morgan and Jay Gould. In fact, it is common 
knowledge that many New York financiers tried to get to know Ford. He 
would have nothing to do with them. As a new-era manager of his time, 
he spurned the business gods of yesterday. 

Henry Ford was certainly the very embodiment of the word entrepre- 
neur. He created not only an automobile, but a whole new way of life in 
America. 

Ford's idea was quite basic. He felt, in my opinion, that he had to pay 
high enough wages so that all his employees could buy "tin lizzies." This 
had a startling impact on American thinking of the day, namely, that the 
worker was probably the biggest consumer of all in the long run. (It was 
on this premise that supermarkets actually got their later start too.) 

So when Ford proposed to a startled world that he was going to pay 
the sum of $5 a day, the capitalist began to shake in his boots. All we 
have to do is to look at the great controversy between Ford and the 
Dodge brothers. I will quote a little of the famous trial here just for 
elucidation of what Ford meant by his one-man revolution. 

The Dodge brothers, early investors in the Ford Company, had mean- 
while founded an automobile corporation of their own. But they were 
still stockholders in Ford. They brought a suit against him because of a 
dividend cut Ford made arbitrarily. The question apparently at stake 
was the relationship between management and stockholders. Who was 
to have the final say? 

The opposing arguments went something like this: Toward what was 
all business directed? The Dodge brothers, who stood for traditional 
capitalism, claimed that business was essentially and principally aimed 
at a profit and therefore at higher and higher dividends. They willingly 
conceded that Ford's methods had yielded excellent profits, but con- 
tended they were not getting back what they considered "a fair per- 
centage of profit" on their investment. 

Henry Ford took a different view. He stated openly that he thought a 
business was first and foremost a public servant. Of his own company 
policy he said that it had enabled a larger number of people to buy and 
enjoy the use of a car and that it had provided an ever-increasing number 
of men with employment at good wages. He added that profits were 

2 p. F. Drucker, The Practice of Management, Harper & Brothers, Inc., New York, 
1954- 



g^ THE MANAGING FUNCTION 

merely what enabled him to keep the factory going, to carry out his plans 
of expansion, and to maintain his company's independence. 
But the big contention came when Ford stated in court: 

Let me say right here that I do not believe that we should make such an awful 
profit on our cars; a reasonable profit is right, but not too much. So it has been 
my policy to force the price of the car down as fast as production would permit 
and give the benefits to users and laborers with the resulting, surprisinglv 
enormous benefits to ourselves. 

The Dodge brothers did not care for this at all, and neither did other 
leading capitalists. To quote from the trial: 

LAWYER STEVENSON (for the plaintiffs): Now, I will ask you again, do you still 

think that those profits [Ford profits] were awful profits? 
ford: We don't seem to be able to keep the profits down. 
LAWYER STEVENSON: Are you trying to keep profits down? \Vhat is the Ford Motor 

Company organized for except profits, will you tell me, Mr. Ford? 
ford: Organized to do as much good as we can, everywhere, for everybodv con- 

cerned-to make money and use it, give employment, and send out the car 

where people can use it-and incidentally to make money. 
LAWYER STEVENSON: Incidentally, make money? 
ford: Yes, sir. 
LAWYER STEVENSON: But your controlling feature is to employ a great armv of 

men at high wages, to reduce the selling price of your car. so a lot of people 

can buy it at a cheap price and give everybody a car that wants one. 
ford: If you give all that, the money will fall into your hands; you can't get out 

of it. 



's uni- 



R. L. Bruckberger, in Image of America,^ advises all the world' 
versities to teach young people Ford's knowledge of political economv 
and to learn this remarkable dialogue by heart. Bruckberger states "that 
it [Ford's testimony] is just as important in economics as the Declaration 
of Independence is in politics." He goes on: "Like the Declaration of In- 
dependence, it marks a kind of Copernican Revolution. Business no 
longer was revolving around money. Money was only one of the planets 
revolving around business. Business itself exists to serve mankind, just as 
medicine exists to serve mankind. Indeed, this fantastic dialogue should 
be looked upon as the businessman's Hippocratic oath." 

Was not Ford, at this stage in his career, far, far ahead of his tunes? 
Had he not reached far into our own times and in many ways penetrated 
the years beyond our present-day thinking? Was he not saying that man- 
agement is, after all, a trusteeship? I believe he was. 

3 Of), cit. 



EVOLUTION OF THE MANAGER 85 

To be sure, Ford lost his case in court. But as Bruckberger says, "In 
the court of pubHc opinion, Ford won his case forever." 

The Case of Entrepreneur ship versus Management 

Since Ford is generally recognized as the epitome of all entrepreneurs, 
we should examine his history and what he did more carefully. Also, 
what he did not do is just as important. 

First of all. Ford is credited with the revolutionary economic theory 
that, if you can sell in volume enough and if you can be of service enough, 
the profits will take care of themselves. 

Peter Drucker, who is one of the nation's leading corporate consultants, 
chides Henry Ford in his latter years for no small degree of managerial 
incompetence. Perhaps he is right in this. Certainly, Ford was not a great 
manager as we understand the term today. But he was an entrepreneur 
and a philosopher. These people we shall always need with us. 

Drucker, in his Practice of Management,'^ discusses at some length 
Henry Ford's attempt to do without managers. He cites Ford's "secret 
police" methods. In his latter days, many men were engaged to spy on all 
Ford executives to inform Henry of any attempt on the part of one of 
them to make a decision. But it should not be overlooked that Henry 
Ford was a product of his own times. Most of his shortcomings, it seems 
to me, can be traced to this and to his advancing age. As all of us do, he 
had trouble adjusting to social change. Drucker states quite simply, and 
I quote: "Certainly it was the absence of a management that caused the 
fall of the Ford Motor Company. Even at its lowest point— just before 
World War II— it still had a strong distributive and service organization. 
The automobile industry believes that Ford's financial resources after 15 
years of losses were fully equal to those of General Motors even though 
Ford sales were hardly more than one-third those of General Motors, . . . 
but Ford had few managers except in sales. . . ." 

What Drucker does not point out clearly is that Ford was not a man- 
ager. He never pretended to be. He was an entrepreneur. He was a 
creator. When it became necessary to manage, he knew how to do it only 
"by the seat of his pants." And his pants were made many years before, 
in a different age. 

That is why definitions are so very important. We must understand 
that the entrepreneur, basically, is not trained for managing per se. To 
be totally successful as a manager, the entrepreneur of the future (and we 
shall have them) will have to learn to delegate much of his work to others. 
I think that he probably will. We have long found that some people 
can manage others well. We also find that some people can't even man- 

4 Op. cit. 



gg THE MANAGING FUNCTION 

age themselves. A good manager must be able to control a fine team of 
spirited competitors. This takes more than entrepreneurship. And it takes 
more than merely technical competence or mastery of techniques. 

There are but a few entrepreneurs born in every generation, so we 
should not spend too much time talking about them. But let us not mix 
up entrepreneurship with management. The former is a thing of instinct. 
The latter is sorting out known facts, and then making decisions based 
on the facts, even though the facts may be human and charged with 

emotion. 

And just because the Ford Motor Company almost failed does not mean 
that any entrepreneur-led company will fail. Some are unusually success- 
ful while the entrepreneur is alive and then continue to grow when the 
entrepreneur disappears. But if the entrepreneurship has not been sound, 
this is not likely to happen. 

BASIC FACTORS FORCING A CHANGE IN BUSINESS METHODS 

We have seen that the capitalist, in the classical concept, has largely 
passed from the American scene. The entrepreneur, too, although he 
still exists and will continue to exist, is certainly not typical of the present- 
day managers of business. That today's leader of industry is different from 
the leaders of industry fifty, seventy, or a hundred years ago is a certainty, 
but what is he like? And why has he changed? 

Social Changes 

Our educational system, although under fire by many educators, has 
nevertheless changed us into a more sophisticated people. The member 
of today's younger generation who has not graduated from high school 
is the exception rather than the rule. And a young man with a college 
degree is by no means the rarity that he once was. The United States 
is a literate country. We are a long way from the rural America of a 
hundred years ago. The teen-ager of yesteryear may have kno^ni more 
precisely where Miami, Florida, is located geographically, but he had 
little chance to get there. The teen-ager of today, on the other hand, will 
probably spend some time there as he goes through life. Even if he does 
not know where he is geographically, he will probably understand it 
better than the youngster who formerly merely read about it in a book. 

The average housewife probably hasn't the faintest notion of where 
Prague, Athens, Warsaw, or Canberra is; but she and her husband can 
travel to any of them in a few hours in a gleaming jet-and a long-term 
payment plan. 

At one time our society seemed to be fairly rigidly divided into an 



EVOLUTION OF THE MANAGER 87 

upper class, a middle class, and a lower class. This stratification, how- 
ever, does not seem to be as clearly defined as it once was. For good or 
for evil, in this country all people eat just about alike, drive about the 
same types of automobiles, and hold mortgages on houses just about alike 
in proportion to income. A man making $10,000 a year may own a house 
worth $20,000; another making $20,000 a year may own a house worth 
$40,000. It is well to remember that these are often mortgaged to the hilt. 
Whether or not this is good will not be answered in our time or in the 
near future. 

We are in a period of revolution. It may be a continuation of the 
American Revolution which began almost two centuries ago, or as Bruck- 
berger says, it may be the second American Revolution. In his Image of 
America, Bruckberger says: ^ 

For more than diree centuries now, while Europe has been slowly disintegrat- 
ing, a society has been in the making in America, based on the same religious, 
political and cultural principles that once built Europe. And now, once again, 
these principles are being put to the test. . . . America, I'm convinced, has 
found answers to some of the problems that most torment Europe's conscience, 
and found them with no disavowal of the European heritage. . . . The great 
revolution of modern times, the only one that has essentially changed forms of 
society, was carried out, not by Russia, but by America, without fanfare, quietly, 
patiently, and laboriously, as a field is plowed furrow by furrow. I consider 1914 
a momentous year in history, but not because it evokes the tocsin and the war. 
For me, 1914 will always be the year in which Henry Ford, by establishing the 
8-hour day and more than doubling wages at one stroke, finally freed the worker 
from "proletarian" servitude and lifted him above the "minimum subsistence 
wage" in which capitalism had thought to imprison him. 

It seems to me that the effect of this "great revolution of modern times" 
is a more uniform way of life for all the people of the United States. One 
observer of the American business scene ^ lists the following seven factors 
which he feels have caused this trend toward uniformity: 

1. The mass production and distribution of goods 

2. The spread of education 

3. The universality of travel 

4. The mass-communication media 

5. The disappearance of the servant class 

6. The disappearance of "Society" 

7. The trend toward informality 

5 Op. cit. 

^ H. Gardiner Symonds, "The New American Capitalism," in Dan H. Fenn, Jr., ed.. 
Management's Mission in a New Society, McGraw-Hill Book Company, Inc., New York, 
1959- 






88 THE MANAGING FUNCTION 

In short, the manager today is in many ways in the same boat as the 
man who works for him. If we miss this point, then we miss what history 
has taught us. Perhaps we are participating in a greater democratic 
process than has ever been known. We all accept the fact that man was 
not created equal except in the sight of God, but I believe we are ap- 
proaching the day when man's relative abilities alone will determine his 
place in society. 

The Emergence of the Specialist 

The first of the true management specialists actually emerged about 
the time we went from hand-tooled production into true mass production. 
Thus we can say that the growth of the specialist has largely come about 
in this century, although evidences of specialization were obvious even 
before the Victorian era. 

Almost everyone knows the story of Frederick \V. Tavlor and some 
of the earlier practitioners of work measurement. Taylor pioneered the 
use of time study as a means of determining "a fair day's work."" 
Taylor's work in time study was followed by that of Frank and Lillian 
Gilbreth, who originated what has come to be known as the science of 
motion study. These early practitioners were dedicated people ^vho 
sought ever-better ways and means of producing more goods at less cost. 
From these beginnings, one of the specialists in the production activity, 
the industrial engineer, evolved. 

When we found that goods could be produced in quantity for less cost, 
it was then up to the sellers of the products to match mass-production 
techniques with techniques of mass distribution. This they have managed 
to do. The trend is still continuing today, with ne^v improvements con- 
stantly being made in both the sales and production fields. 

With advances in the techniques of selling, specialists in the sales ac- 
tivity began to emerge. One such specialist activity is, of course, the 
advertising function. Equally great strides have been made in the area 
of market research. Almost every company of any size has a specialist ^dio 
not only searches for new ways and means to sell his company's products 
but at the same time uncovers new customers as well. The idea of making 
selling a "service" has largely stemmed from the specialist in market 
research. 

Specialists have similarly evolved in other activity areas. Indeed, it is 
the need for and emergence of specialists which have made the task of 
managing so complex. The following common position titles, all of them 
managerial in essence, were virtually unknown fifty years ago. The 
president of a company may have little contact with some of them, 
though all perform functions invaluable to the success of the enterprise. 



EVOLUTION OF THE MANAGER 39 

Director, Market Research Methods Engineer 

Merchandising Manager Director, Quality Control 

Sales Promotion Director Manager, Industrial Relations 

Public Relations Director Research Director 

Controller Salary and Wage Administra- 
Manager, Systems and Proce- tor 

dtires Communications Director 

Accounting Office Supervisor Training Director 

Traffic Supervisor Director, Operations Research 

These are but a few of the newer specialist functions which have to be 
performed. Just the mention of these jobs and their titles indicates the 
degree of specialization in industry today. 

THE PROFESSIONAL MANAGER 

The change in business methods brought about by social change and 
the increasing degree of specialization has, in part at least, fostered a 
degree of professionalism in management. Perhaps it is not accurate 
to say that management is truly professional at this time, but there 
is a definite trend toward professionalism. 

One indication of this trend can be found by investigating the back- 
grounds of the individuals who have been chosen to head some of our 
major firms. At one time it was felt that only a man who had lived his 
entire working life in a particular industry— transportation, basic steel, 
or retailing, for example-had the necessary qualifications to head a 
company in that industry. This is no longer the case. There are many 
well-known examples of military men, bankers, lawyers, and others, 
who have been made presidents and chairmen of large concerns in 
industries with which they have had little or no prior contact. People 
of this type have been chosen because it is now recognized that there 
is something more to being a chief executive than knowledge of the 
business. That something is the ability to plan, decide, organize, and 
motivate— in short, the ability to manage. 

This trend toward professionalism is not limited to the chief executive; 
it extends to at least the next lower echelon of management. The heads 
of the various activity areas exhibit a definite degree of professionalism. 
It is no longer the rule, for example, to make the "star salesman" the 
head of the sales or marketing activity. Selling, per se, is but one function 
of the marketing activity, and excellence in carrying out this function, 
or any of the other functions, is no guarantee of a man's ability to direct 
the over-all activity. In other words, the manager of an activity area— be 



QQ THE MANAGING FUNCTION 

it sales, production, or whatever-must be more than a "superspecialist." 
He must be a generalist. 

Obviously, the chief executive must be even more of a generalist. Al- 
though the head of an activity area must think in terms of the total 
activity and must be cognizant of the interrelationship of his and other 
activities, he is still one-activity-oriented. Further, he performs his job 
in an environment and within a framework of policies and objectives 
that were not created by him. Not so the chief executive. Even though 
the president may have come up through sales, he cannot be sales- 
oriented. He must think in terms of over-all corporate objectives. And 
it is he who must develop these objectives and make the major policies. 

The Manager as a Trustee 

A very important indication of the trend toward professionalism in 
management is the fact that fewer and fewer chief executives dominate 
the ownership of the companies for which they work. Management has 
become too complex for mere ownership or the possession of stock to 
substitute for sound management decision making. Owning or being 
related to the owner of a major part of a business is no longer con- 
sidered to be the prime qualification of a manager. Managers now 
manage by the authority of knowledge rather than by the authoritv of 

ownership. 

Managing has grown from mere ownership and trial and error to a 
position of vast responsibility. The true professional manager has come 
to regard himself more as a "trustee" than a "boss." Indeed, the trulv 
professional manager feels a trustee's responsibility for guarding the 
interests of those who have placed their trust in him. These include 
(1) the owners of the business, (2) the employees, (3) the customers, and 
(4) the general public. 

The professional manager must take his trustee responsibilities seriously 
and do his best to serve the interests of the groups he represents. This is 
much more difficult than serving merely his own interest, and it is one 
of the reasons for the growing complexity of the task of managing. 

Managing is honorable work; it is challenging and fascinating. But 
more important, it is work of vast responsibility. If our wav of life is 
to survive, if there is to be an American Dream to think and talk 
about, there must be men who are willing to make the sacrifice ot then 
time and effort to become "professional managers" in the true sense ot 
the word. 



Robert C. Hood 

PRESroENT 

ANSUL CHEMICAL COMPANY 

MARINETTE, WISCONSIN 




Robert C. Hood has become well known in American industry as one 
of a small group of United States businessmen working actively to 
discover and define the new role of business in a rapidly changing 
society. "The survival of business," in Mr. Hood's words, "depends upon 
its ability to recognize the forces that are making vital changes in its 
traditional role . . . its ability to relate effectively to other social in- 
stitutions . . . its ability to make a really meaningful contribution." 

As president of the Ansul Chemical Company, Robert Hood has 
worked closely with the academic community in the application of 
organizational theory and the findings of social science research to the 
solution of common business problems. His work in such areas as cost 
concern, supervisor selection, management development, executive 
training, and corporate identity has led to many speaking engage- 
ments and his involvement in a number of management and educa- 
tional organizations. 

As an official government representative, Mr. Hood has visited many 
European countries, including Russia, to study and instruct in the field 
of organizational practice. In 19^4 he was a member of a special train- 
ing mission to Austria sponsored by the Foreign Operations Adminis- 
tration of the State Department. In ip^6 he was a delegate to the 
International Human Relations Conference in Rome. In recent years 
Robert Hood has been active in the educational and training work of 
the Young Presidents' Organization. He has served as a director of the 
organization, ivas program chairman of the 7957 national convention, 
and has conducted a series of clinics on improvement of meetings for 
YPO members. 

Robert Hood has been chairman of the advisory committee of the 
National Training Laboratories. He is a trustee of the Midwest Re- 
search Institute and a member of the board of the Brain Research 

Photo by Photographic Dept., Ansul Chemical Co. 



91 



Foundation. He has also served on the hoard of the Business Relations 
Committee of the Chamber of Commerce of the United States. 

He has spoken at a number of development conferences— Wayne 
University, Cornell, New York University, Oklahoma A i- M, the Uni- 
versity of Wisconsin-and before such business groups as the American 
Management Association, Society for Advancement of Management, 
and the Chamber of Commerce of the United States. 

Mr. Hood joined the Ansul Chemical Company in 19^9 and worked 
successively as an accountant, sales correspondent, founder and editor 
of the company newspaper, advertising manager, secretary, and vice 
president. He was elected president in 1949 at the age of thirty-two. 
In his home town of Marinette, Wisconsin, Mr. Hood is a member of 
the City Planning Commission, a director of the First National Bank, 
past president of the Chamber of Commerce, and a former commodore 
of the Yacht Club. 

Married and the father of three daughters, he is an active participant 
in sailing, golf, tennis, bow-and-arrow hunting-and enjoys music and 
literature. He was born in Marinette, attended the University of Wis- 
consin, and served three years with the U.S. Coast Guard during World 
War n as a gunnery officer in the South Pacific. 

May, i960 



CHAPTER 4 

The Art of Managing 



No single chapter on the art of managing can cover every facet of this 
extremely complex subject. I could not begin to put into this limited 
space all that I have learned in my years as a manager, nor would I be 
wise to try to do so. The skills required and the methods employed 
in managing vary greatly with the situation, the individual manager, 
the organization, and the forces at work in our society. ^Vhat produces 
positive results in one instance may lead to disaster in another; or the 
methods used by one manager may be totally inappropriate tor an- 
other manager to use. To be sure, managing is a science as .veil as an 
art but it must be recognized that methods of managing are m a state 
of dynamic evolution. Management theory is constantly changing under 
the impact of the findings of social science research, technological de- 



92 



THE ART OF MANAGING 93 

velopments, social forces, the world situation, and economic variables. 
The methods and skills which solve the problems of today may be 
inadequate to cope with the problems of tomorrow. 

I believe that the best approach to a discussion of the art of managing 
may be to present, as best I can, a few ideas which over the years have 
been helpful to me. Essentially, these are conceptual ideas which have 
helped me, personally, to put my job in a more adequate perspective. 
My hope is that these ideas may be a stimulus to a few readers. The 
best manager is very often one who plants the seed of an idea in the 
mind of a subordinate or into a work situation and carefully avoids 
providing a detailed road map. With a complete plan, program, or 
technique spelled out down to the last detail, the thought processes of the 
subordinate tend to stop, and he becomes an automaton as he proceeds 
with the implementation. With only an idea to work with, he finds 
himself thinking, creating, and applying the idea to a situation with 
which he is much more familiar than I am. The same principle may 
apply when an author attempts to relate to a reader. 

In the succeeding pages, I attempt to examine the manager's job, 
to position him in his organization and in our total society, and to aid 
him toward an insight and an understanding of himself as an individual. 
Then I outline some of the ideas which have become a part of my own 
philosophy of managing. 

A PERSPECTIVE VIEW OF THE MANAGERS JOB 

The very first thing the thoughtful manager should do is to attempt to 
understand the functional nature of his management job and its reason 
for existing. 

Every organization has its objectives, its goals. In working toward 
the accomplishment of these goals, there is a need for the performance 
of many different functions. These functions are performed and con- 
trolled by people. The effectiveness with which the functions are 
integrated and coordinated generally determines the success of the or- 
ganization—and this is essentially our challenge as managers. Our job 
is to integrate and coordinate functions so that the over-all objectives 
of the organization are met. 

There are critical junction points where these functions come together 
and overlap in the organization. Here is where we, as managers, play 
our role, do our job. If we can think of the manager as a "link" between 
functions, our role becomes much clearer. 

However, the effective manager does much more at these junction 
points than merely join functions together, or hold hands to ensure a 
smooth flow of work activity. He feeds into the junction point additives 



94 



THE MANAGING FUNCTION 



that only he can provide. These may take the form of actual decisions, 
or they may be indicated directions or suggestions. You will note in 
Figure 4-1 that there is an attempt made to represent the junction point 
where functions come together as a sphere. The purpose is to point out 
that functions should not be joined together on a plane; the junction 
point should be surrounded with an atmosphere of understanding. The 
effective manager enriches the junction point with a broad understanding 
of the needs and demands of the organization and of our society. He 
brings to bear at this critical junction an understanding, also, of the 
needs of the work groups and of the individuals involved. 

There is a great difference between seeing that sales and manufacturing 
"get together" and seeing that at the point where they do get together, 
the decisions and directions are considered in the light of the needs and 
demands of other functions in the organization, of the organizations 
objectives, and of the broad forces at work in society. 



MANAGER 




ORGANIZATION 
OBJECTIVE 



I 1 1 ' ■ 

Fig. 4-1. The role of the manager in directing the activities of his organization. 



I Stated that only the manager is in a position to provide these addi- 
tives, this understanding. I certainly don't mean to imply that all people 
below the top echelon are lacking in understanding or unable to vie^N' a 
situation with perspective. However, the top manager, bv the nature of 
his position, is permitted and obligated to perform this function m the 
organization. Work groups and the individuals .vho compose them, also 
by the nature of their jobs, are restricted to more specific and narro^ser 
objectives-objectives which have the effect of inhibiting perspective. 

In considering that the manager plays his critical role at these junction 
points, it becomes apparent that the important functions he performs 
are not so much continuous as sporadic or intermittent. He becomes 
involved here, there-wherever functions overlap-in the time span of 
work activity. The way he becomes involved, the kind of understanding 
he feeds into these junction points, determines his effectiveness. 

Because of the vital importance of the manager's role to the accom- 
plishment of the organization's objectives, let us examine more caretulh 
some of the dynamic forces he should understand, some of the things 
on which he should attain a perspective. 



THE ART OF MANAGING 



95 



The Concept of Social Spheres 

Consider the influences which bear on a manager's role, and require 
his understanding, as a series of "social spheres." First there is the 
sphere of the individual, then, progressively larger and extending out- 
ward, the sphere of the work group, the organization, and society in 
general. This concept is portrayed graphically in Figure 4-2. Each of 
these spheres is a complex of needs and demands based on physical 
and emotional factors, social and economic forces, and historical back- 
ground. 





Fig. 4-2. The influence of social spheres on the manager. 

The manager's role is to understand and interpret the influences of 
these spheres. At the point where the manager becomes involved in a 
problem— at the critical junction points where his decision or his direction 
is required— he must feed this understanding in. Here is where these 
complex influences must be balanced and must serve as a guide to his 
action. 

Individual Needs. The needs of the individual are personal and ex- 
tremely complex, and they seem to be organized on a series of levels, 
in order of importance. These range from the basic and most impor- 
tant survival needs on up to the least satisfied needs for contribution 
and dedication to others. The needs of the individual and the require- 
ments for their satisfaction are (1) survival needs, satisfied by food, 
shelter, clothing, air, and rest; (2) security needs, requiring treatment 
in the fairest possible way; (3) social needs, which can be satisfied by 
belonging, association, acceptance, and friendship; (4) selj needs, or 
personality needs, which can be met by realizing self-confidence, inde- 
pendence, achievement, competence, status, recognition, appreciation. 



qg THE MANAGING FUNCTION 

and respect; (5) contribution needs, implying the development of the 
sel£-for-others concept. 

When a need is satisfied, it is no longer a prime motivator of behavior, 
and the next higher level of needs becomes the prime motivator. These 
needs can be illustrated in the form of a pyramid, as shown in Figure 4-3. 

A 

CONTRIBUTION 




Fig. 4-3. The basic organization of an individual's needs. 

All unsatisfied needs are motivators of behavior to an extent, with the 
lower-level needs taking precedence until satisfied. Furthermore, when a 
previously satisfied need is no longer being met, it becomes critical in 
importance. Now it is significant to point out that the pvramid diagram 
(Figure 4-3) is the base at which all individuals start out, in the classical 
sense. However, under the impact of our modern-day society, the pvramid 
assumes some radically different shapes. For example, here in America, 
and especially in American industry, the survival needs are generally 
quite well satisfied and are seldom a prime motivator of behavior. More 
often than not, the people the manager works with are concerned .vith 
security, social, or self needs. 

To the manager, himself, the level-of-needs diagram might look like 
the inverted pyramid in Figure 4-4. By virtue of his position, the phvsio- 



CONTRIBUTION 

SELF 

SOCIAL 

SECURITY 

\ / 

SURVIVAL 

V 



Fig. 4-4. Organization of the manager's needs. 



logical, security, and social needs are well taken care of. In fact, almost 
everyone who has progressed through our educational system has rela- 
tively little difficulty in meeting these first three levels of needs. Ho.vever. 
the fourth level is the point at which most people find themselves. A\ e 
are striving for insight, personality realization, and self-knowledge. 



THE ART OF MANAGING 97 

Only by attaining a degree of this can we, as managers, begin to work 
effectively toward the realization of our contribution needs— the self- 
for-others concept. 

As managers we are more keenly aware of this fifth and highest-level 
need because of the nature of our jobs. Because it is always difficult to 
see the other person's situation, we may be inclined to assume that 
others are concerned with the same needs that we are concerned with. 
We must realize in working with others in the organization that this 
is seldom the case. 

Another thing that occasionally frustrates and confuses managers in 
working with individuals is the seeming inconsistency of their needs. 
One day we may feel we are making progress in helping an individual 
meet some of the higher-level needs. The next day we may find the 
individual concerned with a lower-level need— security, for example. 
Under these circumstances, it is a good thing to recognize that the 
manager and the organization are seldom, if ever, in a position to 
satisfy all an individual's needs. The organization or the work situation 
is not necessarily the individual's central life interest. The extent to 
which his needs are satisfied is influenced by his home situation, family, 
civic, spiritual, and recreational interests. The intelligent manager should 
understand the kinds of needs that motivate people; he should attempt to 
develop a skill in recognizing these needs in the people he works with; 
and he should also face up to the fact that he probably cannot, either 
personally or through his organization, satisfy all these needs. 

Organization Needs. The needs and demands of the organization are 
basically economic. 

Any business organization in our economy must produce goods and/or 
services and market them at a profit. These basic needs appear to place 
on us, as managers, the following specific responsibilities: (i) to provide 
for the survival of the business through development of products, markets, 
and profits; (2) to make most effective use of the organization's resources- 
human, material, and capital; and (3) to provide an adequate succession 
of qualified people for the organization. 

Work-group Needs. The needs and demands of the work group combine 
those of the individual and those of the organization and lie somewhere 
in between. 

Many managers as they go about performing their roles, I believe, have 
a tendency to see problems as either organization problems or individual 
problems. More often than not, they are group problems. The work group 
as a social sphere is the one which the manager is called upon most 
frequently to deal with. In every group there are psychological factors 
present which are subtle, often hidden, but still very real. They can 
obviously be a serious block to preventing the group from meeting its 



Qg THE MANAGING FUNCTION 

objectives Whether the work group consists of a division, a department, 
or two people working together on a project, these factors may be at 
work in varying degrees at any time. Let's look at them: (i) vested interest, 
a tendency to protect the status quo of a particular special interest; (2) 
personal likes and dislikes, reacting to a person's ideas and actions the 
Tame way we react to the person himself; (3) eonfiict between individual 
.oals and group goals; (4) lack of interest in the task; (5) status needs of 
the individual, his need to be liked or respected often more important 
than his concern for getting the job done. 

For example, we are told that people react differently to "high-status 
people and ■'low-status" people. In industry, high status might be the 
manager himself or the leader of the work group. Low status might be a 
foreman, if the people measuring status happen to be middle manage- 
ment. Furthermore, high-status people are listened to more carefullv, 
their opinions are respected by others, and they tend to take part vigor- 
ously in any discussion, as a direct outgrowth of the high regard and 
respect others display toward them. Just the opposite holds true for low- 
stauis people. Their opinions aren't heard or heeded, and consequentlv 
they take increasingly less interest in the work of the group. 

Society Needs. Our total society-its needs, its demands, the forces at 
work-profoundly influences the manager's role. Throughout history, 
society has always searched out and enumerated areas of responsibility 
and roles of action for its institutions to play. The spotlight of public 
attention has revolved like a beacon and focused sharplv at one time or 
another on the institutions of education, government, the militarv. the 
church, and so on. Since the early thirties, the institutions of business 
and industry have been emphasized over most of the others in the public s 

"""Thrpublic attention profoundly influences the manager's role. He has 
had to adjust to it, and in many cases this has been a dramatic change for 
him The earlier conception of the business institution was that it was 
largely a private affair. This was theoretically justified in a laissez-taire 
policy which had the primary effect of keeping public attention unfocused 
on business. The initial reaction of many business leaders to this public 
attention was to inveigh against it and hope for a return to obscuritv. 
However, in recent years, most business leaders have recognized the 
relative permanence of public attention on the business institution, and 
they have done a great deal of soul searching in attempting to onnu ate 
their institutional responsibilities. It is evident that the present-day indus- 
trial organization must spend more time and greater effort relating itself 
to the total social scene of which it is a part. The person responsible for 
the organization-the manager-must not only find his organization s place 
in a dynamic economy and a changing social scene, but he must assume 



THE ART OF MANAGING 99 

a leadership role for the total institution of business. To do this he must 
attempt to understand that social scene. 

In the long run, there is no place for the narrow specialist in a man- 
agerial position. The manager must be a person of broad and varied 
interests, experiences, and horizons. He must not only know his own 
business and all the significant facets of its operations, but also be con- 
cerned with and involved in the world beyond his own organization. To 
put it another way, an understanding of Shakespeare may, in the final 
analysis, be just as important a managerial attribute as a familiarity with 
accounting and engineering. The influence of history, trends in sociology, 
economics, philosophy, and the currents of world politics profoundly 
afi:ect the business organization. The manager must be aware of what is 
going on and has gone on in the world around him. He must recognize 
the significant interrelation between the various institutions of our society. 
He is really the only one who is in a position to interpret these things in 
relation to the goals of his organization. This leadership role is forced 
upon him. 

Society has not made it easy for the businessman to assume this leader- 
ship role. In recent years particularly, public opinion has cast the man- 
ager in a unique and at times confusing role. He stands squarely between 
the scientist, on the one hand, and the politician, on the other. Perhaps 
Figure 4-5 will clarify the manager's role in society. 

The scientist is a producer of knowledge. In the classical sense, the 
businessman is a producer of wealth— of goods and services. The poli- 
tician's role is that of a redistributor of wealth. Let me further clarify 
these statements. As a producer of knowledge, the scientist is concerned 
with truth (or knowledge) and, as such, is basically amoral. Society does 
not expect him to be concerned with the implications of his discoveries. 
In fact, society rather resents the scientist who is concerned. At the other 
pole, the politician is essentially moral. He is expected by society to be 
concerned with people and their problems. The businessman, in this 
process, becomes a transfer agent. Amorally, he takes scientific knowledge 
and transfers it into goods and services. At the same time that he is doing 
this, however, he must keep in mind the moral implications— the effect 
of his actions on society. Therefore he is both moral and amoral. The 
conflict and the confusion come in society's attitude toward the business- 
man-transfer agent. It is never certain whether he is operating morally or 
amorally, and hence his involvement or suspected involvement, in either 
science or politics, is both resented and restricted. 

This attitude on the part of society can be a confusing and frustrating 
thing to the businessman. However, I believe that the intelligent man- 
ager will accept this as a reality of the social environment and recognize 
the influence it exerts on him as an individual and on his organization. At 



100 



THE MANAGING FUNCTION 



the same time, by recognizing the moral and amoral nature of many 
problems, he may begin to find it easier to define problems, and hence 
easier to solve them. There are many problems where the possible solu- 
tions have conflicting moral and amoral implications, and merely identi- 
fying this fact is extremely helpful in resolving the proper course of 
action. 




SCIENTIST 

Producer of 

knowledge 



Amoral - 
concerned only 
with truth (or 
knowledge) 



BUSINESSMAN 
Producer of wealth 



Transfer agent - 
he produces wealth 
by converting know- 
ledge into goods 
and services 

Moral- Amoral - 
concerned with 
truth (knowledge), 
also effect of 
knowledge on 
people 



Redistributor of 
wealth 



Mora I - 
concerned with 
people and their 
problems 



Fig. 4-5. The manager's role in society. 

Balancing f^eeds. Understanding, considering, and interpreting these 
four social spheres-.oc^Xy, the organization, the xoork group and the 

:^,.-.,./-isV manager's job. He must bring the clearest P-^le unde. 
standing of these spheres and their influences to bear a the jtmct on 
points. When the needs are effectively interpreted and ''"""-'^;^;'- 
emerge as decisions or directions. I use the term balancng as one of the 
important skills required of the manager. Let me clarify this. 

Tn the past fifty years, two fundamental and different management 

methods have been employed. The ''--"fi---;,^?-;^'" 4^^.11 
placed emphasis on meeting the organization's needs foi efflClenc^ and 
profit. It was concerned primarily with '■things," and this -Fe--- 
extreme Following World War II, management emphasis tende^l to s.ung 

o the other extreme, that of meeting the individual's needs. The sn.ng 
emphasis on "human relations," the developments m bnsiness-laboi legis- 

aTon testify to this. In each instance, one emphasis was at the expense of 
the othe Today there are indications that the pendulum, luiMUg s.uug 



THE ART OF MANAGING 101 

from one extreme (thing-centered) to the other (people-centered), will 
begin to move to a point somewhere between the poles of scientific man- 
agement and the human-relations approach. The effective manager is 
required to use the best features of both approaches— and this calls upon 
his "balancing" skill and his understanding. This is a good example of 
the moral-amoral conflicts involved in many problems that we mentioned. 
Here the moral approach, exemplified by the human-relations aspect, 
must be resolved with the amoral, or scientific. 

Importance of Timing 

No perspective view of the manager's job could be adequate without 
reference to the critical importance of timing. It is perhaps the single 
most important factor that determines a manager's success. He can bring 
to his job energy, skills, insight, enthusiasm— he can formulate the best 
plans— but if he is out of phase in his timing, he will fail. A dynamic 
organization, working toward the achievement of an objective, is a deli- 
cate, sensitive machine. Its work flow is like an electric current, where 
sequence and timing must be perfect. The manager must develop a 
sensitivity— almost an instinct— as to when to take action, how to gauge 
people's feelings and actions, when and to what extent to inject himself 
into a situation. There is no rule of thumb that the manager can follow 
to ensure proper timing— no simple way to develop sensitivity to it. How- 
ever, through understanding the needs and demands of the social spheres, 
through developing his personal skills and with the experience of working 
with his organization, the manager can approach a sensitive awareness 
which will enable him to get his job done efi:ectively. 

In review, the manager is a link between functions. He plays his role 
at the junction points where functions of the organization come together 
and overlap, feeding in a broad understanding of the needs and demands 
of the individual, the work group, the organization, and society. He must 
understand these needs, balance them, and concern himself with the 
vitally important matter of timing. 

MANAGING YOURSELF 

Before he can manage others effectively, the manager must first become 
skilled in managing himself. He must recognize that his physical and psy- 
chological make-up affects his perception of every situation. 

Socrates, several thousand years ago, embodied this idea in his famous 
words "Know thyself." Since then civilized man has been struggling with 
the implications and applications of this powerful concept. As managers, 
knowing ourselves is particularly important because our interpretation of 
and reaction to things are markedly influenced by our physical make-up 



^Q2 THE MANAGING FUNCTION 

(health, metabolism) and our psychological make-up (feelings, needs, atti- 
tudes, experiences). For example, a person who is color-blind does not 
see certain things that a person with normal color vision sees; this is the 
influence of physical make-up. Or a manager sees union activities in a 
different way than does the union steward; this is the influence of job 
responsibility, or psychological make-up. To be effective as managers, we 
must strive to see things as clearly, as realistically as possible. \Ve must be 
able to understand and interpret the needs of the individual, the ^vork 
group, the organization, and society on a basis of reality. 

Let's examine some of the ways the manager can work toward the at- 
tainment of this clarity of perception, in other words, how he can become 
effective at managing himself. 

Self-inventory 

It is axiomatic that in managing other people, you must kno^v what 
you have to work with. This includes knowing their strengths, weaknesses, 
skills, and abilities. This holds true in managing oneself; the manager 
must have a realistic idea of his own capacities and limitations. I am not 
advocating psychoanalysis for the manager, but a realistic self-evaluation 
is a healthy starting point for better self-management. As managers, we 
should know our skills, our physical condition, when we work best, what 
irritates us, why we like and dislike certain things and people, and ho^v 
we react in different groups. If we are aware of this need, it is possible 
to get a great deal of help from friends and associates in our on-going 
situation. We may be able objectively to test and check out our self 

impressions. 

With an awareness of ourselves, we can understand others more easily. 
At the same time, we can consciously work to overcome our limitations 
and we can seek support and help for our actions in areas which we 
recognize as weak. We can better tolerate frustration, and in many cases, 
we can filter out the effects of our own feelings. 

For example, I have found that I do my best work in the afternoon and 
evening. Consequently, I have my most important appointments scheduled 
for the afternoon, and I tackle the most critical problems in the afternoon 
and evening. This sounds quite elementary, but in many cases knowing 
yourself and your capabilities boils down to rather simple things. 

Personal Goals 

When a manager has a reasonable idea of his own strengths and ^veak- 
nesses, he knows the nature of the material he has to work with. ^Vhat to 
do with the material is the next question. Some people live on a seemmglv 
unorganized day-to-day basis with little apparent direction. HoAsever. 
when a realistic target or goal is set, the direction becomes clear and the 



THE ART OF MANAGING 103 

problem becomes one of implementation. Thus it is essential in self-man- 
agement to spell out targets or aspirations and attach target dates to them. 
These long- and short-range personal goals can then be used as a yardstick 
with which to measure progress. After a short period of time, it becomes 
apparent whether or not the evaluation of personal limitations and 
capacities is realistic. 

When setting personal goals, the manager will often limit them to the 
job. This, I believe, is a mistake. The importance to the manager of 
family, civic and spiritual activities, recreation, and the like, cannot be 
overstressed. Personal goals should pertain to the "whole" man, not just 
the "work part" of the man. 

Individually, we realize how difficult it is to state a philosophy clearly. 
Our philosophy of living generally has many facets and ramifications and 
is continually evolving. Understanding of it generally emerges from ob- 
serving the principles that guide it and the objectives it is striving to 
reach. However, every individual does have his own set of values and 
objectives. Perhaps they are not clearly defined, but they exist. Coming 
to grips with and clarifying a personal philosophy is not easy— it is not 
done at one sitting— but if it is done, it can be a tremendous source of 
strength to the manager and can help him immeasurably when he faces 
critical decisions. 

Knowing yourself is the great challenge and the first step. Using that 
knowledge is the second and vitally important step. Use it— because knowl- 
edge is of no value until put into action. At the same time, most of us 
find that in action we learn to know ourselves better. So the matter of 
knowing yourself is a constantly evolving, changing thing— a continuing 
challenge. 

Impact on Others 

As a manager, it is necessary to develop an awareness of the impact of 
your actions on others. People react to a top manager in two basic ways. 
They react to him as an individual, and they react to his power position 
within the organization. The latter reaction is invariably stronger. By 
virtue of the manager's position, people will listen to him closely, will 
be inclined to agree with his views more frequently, will try to win his 
respect, and will try to present their better qualities and call attention 
to their accomplishments. They will also tend to hold back certain in- 
formation and will often be fearful or defensive. These typical reactions 
to the top manager's position often limit the objectivity of the incoming 
data he receives. In many instances, these reactions are inevitable. They 
are facts of life. But when a manager is aware of them, he can interpret 
data in the light of this awareness, and he can use the data more ob- 
jectively. 



IQ^ THE MANAGING FUNCTION 

The manager should also recognize that many personal actions and 
attitudes on his part, which in others might pass relatively unnoticed, 
are carefully observed and weighed by his subordinates. Offhand remarks, 
nonverbal behavior such as remoteness or overinvolvement, are matters 
of great concern to the people he works with. The subordinates will often 
find themselves asking, "What did he really mean by that?" 

It is easy to see that the manager is always "on the spot" in his work 
situation. He can react, and many managers do, in one of two basic wavs. 
He can accept these reactions on the part of people as inevitable and 
unavoidable, and he can forge ahead with little concern for them. His 
justification for this attitude can be that these are reactions inherent ni 
his position and that he cannot let them get in his way as he attempts 
to do his job. Or he can become overly concerned. He can compensate, 
consider all his actions carefully and cautiously, and, in effect, become 
quite an artificial person in his dealings with others. I believe that neither 
of these attitudes constitutes his proper course of action. He should be 
aware of the impact of his actions on others and should strive to overcome 
the kinds of behavior which his experience shows have caused problems 
in his relations with people. And yet, when the moment of truth arrives, 
he must act with courage and conviction in the manner which he kno^vs, 
within himself, to be right. One of the most recurring, and at times most 
valid, criticisms of the human-relations approach is that it can tend to 
compromise conviction, to water down courage. The best of human-rela- 
tions theory leads to awareness, and awareness leads to an understanding 
which helps the manager to be his own man. 

Maintaining Physical and Emotional Health 

As an individual ascends the ladder of management responsibilitv. pav. 
prestige, and the other trappings and rewards of management increase. 
With these symbols, the manager has also earned greater freedom m the 
use of his time; or to put it another way, he has less specific direction. At 
the same time, greater strains are placed upon the manager's phvsical and 
emotional health; greater demands are made upon him. In order to plav 
his role effectively, it is mandatory for him to maintain his physical and 
emotional health. He has a real responsibility to do this-a responsibilitv 
not only to himself and to his family, but to his organization and to 

society. 

Let's examine some of these management pressures and some possible 

ways of dealing with them. 

Perhaps the most important problem facing the manager is the tre- 
mendous demand upon his time. There seems to be a series of lavers ot 
demands. One is within the organization itself. The manager is called 
upon to speak to, meet with, and deal with many, many people each day. 



THE ART OF MANAGING 105 

He is overwhelmed with problems great and small which require or seem 
to require his attention and his time. Merely reading reports and corre- 
spondence could take up all his time if he permitted it to do so. This 
situation can be complicated if the top manager has not been able to 
shake the habits he has learned while coming through the management 
ranks. With the increase in responsibility, it is virtually impossible for 
him to deal with details as he has in the past. The manager who tries 
invariably ends up frustrated, overworked, and failing in his job. 

At another level, there are time demands somewhat above the routine 
operations of the organization. There are pressures on the manager to 
read voluminous quantities of management literature. The conscientious 
manager feels strong obligations to keep abreast of management theory, 
economic trends, and technical developments. The manager is also the 
premier social representative of his organization. As such, he is expected 
to speak with, play golf with, drink cocktails with, and generally spend 
time with many outside people who are important to the organization. 

At still another level, there are community demands. At the local, state, 
and even national levels, the top manager is often bombarded with re- 
quests to speak, to prepare articles, and to engage in fund raising, political 
activity, and civic projects. 

Facing these pressures, the manager realizes that it is not humanly 
possible for him to satisfy all these time demands. Time is his most perish- 
able asset, so he must use discretion— he must be selective about the use 
of his time. I am sure there is no rule of thumb as to how a manager 
resolves this situation. It becomes a very personal matter. However, I 
have established a criterion which seems to work for me, personally. I try 
to evaluate these demands in light of the question, "Is this a place where 
I can make a significant difference?" When judged by this standard, my 
own problems become less complicated. I am able to delegate many oper- 
ational details, personal contacts, and social obligations. I am able to 
arrange for a great deal of the management literature, reports, and 
correspondence to be screened for me. I am able to turn down, in good 
conscience, many of the speaking, writing, and fund-raising requests. The 
criterion is always "Where can I make a difference?" 

There is another dimension to the maintenance of physical and emo- 
tional health. After blocking out the amount of time he is willing and 
able to devote to the organization and the community, the wise manager 
will provide a certain amount of time for himself— a certain amount of 
"free" time. The manner in which he uses this time can be vitally im- 
portant. Used properly, it can serve to recharge his "battery," or renew 
his energy supply. It can also be used to reorient his perspective and en- 
able him to bring back to the organization the drive and enthusiasm so 
critically needed in his job. When considering the use of this free time, 



,Qg THE MANAGING FUNCTION 

we might think o£ it as time for recreation-a word which seems to have 
taken on some new connotations in our present-day society. I beheve it 
is important to reexamine the word and its true meaning. AVhen we thmk 
of it as recreating-a refreshment of strength and spirits after toil-we 
begin to obtain a better perspective. Whether this means sitting in iso- 
lation and smoking a pipe or taking the family on an outing is really 
insignificant. Battery charging is a very personal thing. 

Learning How to Learn 

This is perhaps the most puzzling and most elusive of the self-manage- 
ment skills. We have all been told at one time or another that the purpose 
of formal education is not so much to impart knowledge as it is to teach 
us "how to learn." Learning how to learn is a challenge that is with all 
of us long after we have left the formal institutions of learning. It is a 
particularly vital problem to the manager whose position and responsibil- 
ities constantly demand the development of new skills and techniques, 
the mastery of new fields of knowledge. 

I have personally found no short cut to effective learning. I don t kno^s- 
if there is one. However, I have found that each learning experience as it 
comes along, and as I work on it, tends to help me develop a self-disciplme 
and an attitude which are invariably helpful in the next learning experi- 
ence Right now I am at a point where I actively seek out ne.v areas of 
learning, areas which in many cases are far afield from organization 
problems. This not only supports some of my own "battery charging 
requirements, but I believe is helpful training for learning experiences m 
fields more related to business problems. For example, I have been quite 
interested in sailing for a number of years. Recently, I decided to attempt 
to master celestial navigation. It was not an easy thing for me to do. but 
I feel that the self-discipline I was forced to impose on myself as I 
struggled through the textbooks was a very healthy and potentially valu- 
able thing. . Ill 

Learning experiences in fields far removed from business are valuable 
in that they help toward a real understanding of the great interrelation 
between the various fields of human knowledge. They tend to help the 
manager maintain and further develop an awareness of the influence ot 
the different spheres of society on himself and his organization. 

There is another advantage to ranging far afield as we attempt to mas- 
ter a subject. We have an opportunity to "learn in depth," to learn b\ 
ourselves. As managers we have relatively few opportunities to do this. 
Within our organizations, we seldom have the time to learn in depth. 
The ready availability of experts and various resources tends to keep most 
of our learning on the horizontal plane. Our ability to learn m depth 
becomes rusty, and this tends to deter us from investigating and learning 



THE ART OF MANAGING 107 

in new fields. This, we have said, is a vitally important obligation of the 
manager. This skill, this ability to learn in depth, is a valuable thing- 
something we cannot afford to lose. Therefore our ventures into new fields 
of knowledge far removed from business can help us maintain the depth- 
learning skill— can help keep us sharp. 

I believe that the man who is constantly trying to understand more 
about the total social scene, the man who seeks out challenges in new 
fields of knowledge, the person with intellectual curiosity, will have no 
problems with emotional health. He will be in touch with reality. 

In review, learning the skill of managing oneself is a prerequisite for 
effectively managing others in an on-going situation. It involves getting 
better acquainted with yourself; defining, as best you can, your personal 
goals, principles, and objectives; becoming aware of the impact of your 
actions and position on others; learning how to maintain your physical 
and emotional health; and learning "how to learn." 

PRINCIPLES 

I have spent a great deal of time discussing the nature of the manager's 
job and the matter of self-management. This may, at times, have seemed 
somewhat alien to the "art of managing." I sincerely believe, however, 
that only when a manager has positioned himself in our total society and 
in his organization— only after he has considered the challenge of self- 
management— can he go about establishing the kinds of methods and 
attitudes within the organization which will produce results. Only with 
this understanding can he effectively approach the specific problems of 
managing. 

. In the following pages, I have tried to outline some of the principles 
which have become meaningful to our company. Over the years, these 
principles have been the foundation of our management philosophy and 
have been employed in many diverse ways in our operations. In addition, 
I have attempted to illustrate the application of these principles in a 
number of situations which are common to business in general. 

People Support What They Help Create 

Far and away the most powerful concept in our management philosophy 
is the idea that people support what they help create. Obviously, an 
organization's objectives must be achieved through people. Research in 
the social sciences, coupled with business experience, indicates that when 
people are involved in creating (for example, objective setting or problem 
solving), they are not only motivated but better qualified to help imple- 
ment, through action, what they have helped create. In our own organ- 
ization, we have found that involving the people who will carry out the 



.^r. THE MANAGING FUNCTION 

assignments leads to more realistic definitions of tasks and more effective 
implementation, or "getting the job done." 

The application of this principle tends to create in people a greater 
interdependence and maturity-helps unleash their full creative poten- 
tial. Also, if a block arises requiring a change in plans, people are more 
flexible. They can overcome these obstacles and proceed with the task 
because they have been involved in the decision-making process. As a 
result, they have developed a framework of understanding. The under- 
standing enables them to substitute an alternative course and proceed 

with action. 

In this process of involvement, many of the individual's social and per- 
sonality needs are met, while at the same time he is contributing to the 
objectives of the organization. People's social needs, you will recall, in- 
clude needs for belonging, association, and acceptance. These can be met, 
at least in part, by the dynamic meeting process of participative problem 
solving. The higher-order ''self needs" include needs for self-confidence, 
independence, achievement, competence, recognition, respect, and ap- 
preciation. The creative process hinges primarily upon meeting these 
needs, because only when they are reasonably well met can the individual 
break out of his box and free himself to be really creative. AVhen a person 
is involved, when his opinions are asked for, he finds that he becomes 
significant in decisions. Also, when his opinions are valued, he feels a 
degree of responsibility. He is part of the decision. 

The Continuum of Participation. The application of the principle that 
people support what they help create can be a dynamic influence withm 
an organization, provided that the principle is understood and applied 
intelligently. I say that it must be applied intelligently because there is 
a real trap here. Only the people affected by a decision or problem should 
be involved. Our own experience at Ansul has indicated that involving 
people in tasks or problems that do not affect them can be frustrating and 
in some cases disastrous. The manager must carefully examme and recog- 
nize the problems which center around the continuum of involvement or 
participation. There are some situations that the manager must handle 
alone There are others where he must involve other people m varying 
degrees Finally, there are problems that he will turn over entirely to 
other people, and thereafter he will accept their decisions. This concept 
is presented graphically in Figure 4-6. Selecting the appropriate degi^e 
of involvement is of critical importance. This can be determmed bv 
weighing the nature of the situation, the number of people involved, and 
the possible consequences. 

In any case, the manager should recognize that by involving other 
people, by participating with them in decision making and problem 
solving, he is not abdicating his responsibility. He is at all times respon- 



THE ART OF MANAGING 

On any given problem, the manager may say to his subordinates: 



109 



c 


No 

Participation 


IMPLEMENT 
REACT 

ADVISE 

SHARE 

ASSIGN 


"l have mode this de- 








cision and 1 am asking 
you to implement it" 

1 om about to make 


in 






this decision, but be- 
fore 1 do, 1 would like 
your reaction" 

"l would like you to 


Q 
o 






advise me so that 1 can 
arrive at a decision" 

1 would like you to 


E 
c 






shore with me in mak- 
ing this decision" 

"You make this decision 




Full 
Portic 


potion 


and whatever you decide 
1 will support" 



Fig. 4-6. Graphic representation of the degree of participation of the subordinate. 

sible for the soundness of the decisions made and the goals set by sub- 
ordinates. 

The foregoing discussion is in support of the idea that the manager 
who manages least, manages best— a bold paradox which makes sense 
when the top manager's real function is examined. We have said that the 
manager's role is to translate needs and demands into action. When in- 
coming needs and demands are kept in harmonious balance, and when 
people within the organization have an emotional investment in the 
implementing of objectives, the manager is freed of many supervisory 
responsibilities. He can concentrate on interpreting data and setting 
broader and longer-range objectives. His job in this context then becomes 
one of instilling in his people an emotional investment, the desire to 
implement successfully the organization's objectives. 

Decisions Should Be Made at the Lowest Possible Level 

A corollary to the principle that people support what they help create 
is the idea that decisions should be made at the lowest possible level. In 
most organizations, too many decisions are made at the top. This happens 
because of our present-day formal organizational concepts. It happens 
because of the manager's tendency to become overinvolved in the nuts 
and bolts of organization functions. A decision made at the top often is 
made without the full utilization of valuable human resources. It is often 
made in the absence of pertinent data which should be applied at the 
decision point. Effective decision making or problem solving can be done 
at a lower level than is generally recognized and accepted. Top managers 
should consider the possibility of having decisions made as low as possible 



YiQ THE MANAGING FUNCTION 

^N-ithin the hierarchv. Obviouslv, the decisions must be consistent ^vith 
the needs of the organization. 

^Vhen the manager faces the problem of where to establish the point of 
decision, he might use the following criteria to guide him: 

1. Corporate philosophy 

2. Feasibility 

3. Implications 

4. Timing 

If the decision does not require the manager's interpretation of the above 
four criteria, it can be made at a lower level. It is surprising how mam- 
decisions can be moved do^vn^vard Avithin the organizational hierarchv. 
Applving this principle can have many salutary effects: 

1. It trains and develops people in the decision-making process. 

2. It frees management from involvement in decisions ^s'hich can be 
better made at another level. It gives the manager time to concentrate on 
more difficult and longer-range problems. 

There is a trap in this principle, too. It is mandatorv that management 
does not let people get the idea that thev must be involved in everv 
decision. In applving the principle of pushing decisions doAsm to the 
lowest possible level, die manager ^vill find that his success depends upon 
intelligentlv understanding the criteria ^vhich affect decisions. In our 
own experience at Ansul, ^VG have had managers, engineers, and profes- 
sional people ^vho ^vere verv disturbed because thev ^s-ere involved in 
some problem-solving processes and not in others. ^Vhen this has occurred. 
we have dealt ^v'ith it bv clarifving the criteria affecting decisions. 

Creative Approach to Problem Solving. In the final analvsis. the man- 
ager's job comes do^vn to solving problems-making decisions-even if his 
onlv decision is to allow someone else to make the decision. No amount 
of self-awareness, understanding of society, participation, or the mam- 
other things Ave have discussed previouslv are of value if a decision is not 
made and made at the right time. 

Hence, a manager must concern himself Avith problem solving and 
decision making and the manner in Avhich thev are approached in his 
organization. 

I believe that the scientific approach to problem solving is a good 
starting point in discussing this subject. In the technical world, this 
"scientific approach" is Avell knoAvn. There are five steps: (1) the problem 
is identified; (2) data are gathered: (3) solutions are advanced: (4) a choice 
or decision is made; and^ (5) the decision is implemented. A sixth step, 
in some cases, provides for evaluation of results at a certain point or 

points. 

Although universallv employed and acclaimed in the technical fields, 
this method is not ahvays used or even thought of in approaching human- 



THE ART OF MANAGING 111 

relations problems. Personally, I have found it an excellent approach in 
dealing with "people problems." 

Accepting this basic problem-solving framework, people called upon 
to solve a porblem will identify it and gather data. The greatest challenge 
to creativity comes in advancing solutions and making decisions. At this 
point, we in our organization have found two principles which when 
employed seem to produce positive results. The first is the idea that man- 
agement must be creative rather than adaptive. 

Creating rather than adapting is a thought-provoking challenge when 
examined in relation to the solution of "people problems." When we stop 
to consider that all people problems are different simply because all 
people are different, we can understand why a solution that worked yes- 
terday may not necessarily work today. When a manager is called upon 
to solve a problem, he is, in fact, being called upon to think. He is being 
asked to create rather than just imitate. He is being asked to work out a 
solution of his own, not to follow a pattern worked out by someone else. 

If a manager allows himself and his organization to adapt and imitate, 
he may be able to move along and keep pace with the economic and social 
streams. But there are tides in these streams, and he will not only rise 
with them, but will also fall with them. He has in effect lost control of 
his own and his organization's destiny. If he recognizes that he, his or- 
ganization, and his problems are different, and if he is not willing to 
fall with the tides, he will strive for creativity. He will evaluate every 
problem solution in the light of creativity or adaptability. 

There are in our society people whose major function is the mainte- 
nance of the institutions of society. We could call them "social oilers." 
They are primarily interested in seeing that things proceed smoothly in 
the direction set. They maintain and improve, but do not innovate. There 
are also in our society creative people. Society obviously has a real need 
for "social oilers," and business has a need for managers of the "social- 
oiler" temperament. However, I believe that it has a much greater need 
for creativity. Earlier, I mentioned the sharp focus of public attention on 
the institution of business. It requires no crystal ball to see that under the 
impact of a mushrooming population and startling technological develop- 
ments, the years ahead will be fraught with social and economic change. 
I believe that business will be, in fact is, called upon to take the lead in 
producing creative solutions to these tremendous problems. As managers, 
we have more than an ideological responsibility; we have a practical 
survival need confronting us. We must be creative rather than adaptive. 

Use Resources Effectively 

Regardless of organizational levels, those resources necessary to solve 
any problem should be utilized. This is the second principle we apply in 



2J9 THE MANAGING FUNCTION 

problem solving, and it sounds simple and obvious enough. However, 
resources-the best resources-are often found in strange places. 

Information vital to problem solving is not always in the possession 
of top management, or middle management, or even in the organization. 
In most instances, the man who knows the most about a particular job- 
the expert-is the man who is actually doing the job. In addition, the 
expert is usually the man who ends up carrying out the new task or 
implementing the decision. Here, we end up back at the principle that 
people support what they help create. 

The manager must create an atmosphere where resources are employed. 
He must constantly encourage people to obtain information and help 
from others, regardless of hierarchal levels, who can contribute to the 
problem solution. Perhaps the best way he can create this atmosphere is 
to start with himself. He must evaluate the problems he is called upon to 
solve and then consider what resources he can bring in to contribute in- 
formation, experience, and creativity. 

In small and medium-sized organizations, it is often not economical 
to maintain certain kinds of experts on the full-time payroll. However, 
this does not alleviate the need for some of these expert staff services in 
problem solving. At Ansul we have used outside resources on job evalua- 
tion, training problems, engineering problems, and management prob- 
lems. We have learned that besides providing vitally needed technical 
views and information, these resources have been valuable indirectlv as 
sources for new ideas in other areas. They have often contributed more 
objective views of our organization and our operations, and they have 
been instrumental in developing our own managers. 

APPLYING THE PRINCIPLES 

We have attempted to apply the afore-mentioned principles creativelv 
to a variety of situations within our own organization. As problems have 
arisen in diverse areas, we have evaluated them in light of these questions: 
Have we brought the proper resources to bear on the problem? Have ^ve 
brought the decision down to the lowest possible level? Are we being 
creative rather than adaptive? And finally, have we kept in mind the 
underlying principle that people support what they help create? In applv- 
ing these principles, we have in most cases seen startling and positive 
results. 

Setting Objectives 

Setting objectives for an organization is a logical and increasinglv 
widely accepted management technique. Stated and specific objectives for 
the total organization, its divisions, departments, sections, and individual 



THE ART OF MANAGING 113 

managers, are a practical way of assuring unity of purpose and providing 
a means by which to measure performance. 

We asked ourselves what implications the foregoing principles had on 
the problem of objective setting— and came up with some interesting 
answers. In the first place, there is often an inclination on the part of 
management to set objectives for the organization and its various func- 
tions arbitrarily. But this approach is contrary to the idea of involvement 
or participation. It does not make use of many valuable resources and is 
essentially an adaptive, rather than a creative, solution to the problem. 

We have tried to bring the setting of objectives down to the level of the 
people who are really involved in meeting the objectives. Top manage- 
ment must set broad objectives for the organization in the areas of profit, 
human-relations attitudes, and the like. Starting with these general cor- 
porate goals, individual managers are asked to create their own objectives. 
They are given freedom to create, elaborate, and build the objectives for 
their particular departments. They are asked to become involved. The 
objectives are built from the bottom, and when they finally reach the 
top, they often take a different form than management might normally 
expect. 

Because people are involved in setting goals, they seem to evidence 
more enthusiasm and creativity in meeting those goals. Because they are 
the experts on their own particular operations, the goals tend to be more 
realistic. In the years since we started this approach, the results have been 
excellent. We have come amazingly close to meeting our objectives. Where 
we might have fallen short, the contributing factors have been more 
easily spotlighted and rectified. 

Foreman Selection 

Selecting a foreman is a common and seemingly mundane problem in 
industry. But when we stop to consider the importance of the foreman, 
the fact that he is the vital link between management and production 
workers, the importance of selecting the right man becomes critical. More 
often than not, the man who gets the job (i) has seniority, (2) is the boss's 
pet, or (3) is the department's best producer. None of these attributes 
particularly qualifies a man to be a good foreman. 

So, in light of our management principles, how do we approach the 
problem of foreman selection? In the first place, with management doing 
the selecting alone, we were obviously bypassing some valuable resources. 
Management certainly has a stake in the problem and has to be involved. 
However, the people working for the foreman have a big stake too, so 
we felt they had to be involved. In addition, other foremen had a great 
deal of information and experience to contribute, so we felt that all 
these resources must be brought into the problem. There is another 



.-.^ THE MANAGING FUNCTION 

factor, that people support what they help create. Because the foreman's 
success is so dependent upon the enthusiasm, motivation, and cooperation 
of the people he supervises, the latter certainly should have some voice in 

selection. 

With this background, we employed a technique developed by the Air 
Force and used to select bomber crew chiefs. We asked all hourly workers 
to help us in developing a set of criteria for foremen. AVe also asked other 
foremen in the company to do this. At the same time, management pre- 
pared a list of qualities it considered important. Meeting together, man- 
agement, other foremen, and representatives of the hourly employees 
consolidated these lists and came up with agreed criteria for the foreman's 

job. , 

The next step was to ask the hourly employees to suggest, from among 
their fellow workers, people who best met the agreed-upon criteria. The 
results were surprising! In light of the qualifications required, manv 
people immediately eliminated themselves. There were cases where one 
man's name was consistently suggested; in some cases it was a man whom 
management had never considered as foreman material. In the years smce 
this system has been employed, where vacancies have occurred, manage- 
ment has reserved the right to make the final selections. In every case to 
date, however, the man selected has been a prominent choice of his 
fellow workers. More important, the men selected under this svstem have 
without exception turned out to be excellent foremen. Their departments 
have been characterized by high morale and outstanding productivitv. 

In this case, we used the necessary resources and created a situation 
where the people affected were involved in the problem and its solution. 
People support what they help create. 

Cost Concern 

Management obviously has a continuing obligation to control costs: 
and costs in our organization, and in every other organization that I have 
ever heard of, have a way of getting out of line periodically. 

What are the implications of these principles in searching for ^savs to 
control costs? When management launches a cost-reduction program, the 
approach is often arbitrary and essentially adaptive. Selected items are 
eliminated until the necessary savings are theoretically provided for. Or 
perhaps there is an arbitrary percentage cut of all budgets. In both cases. 
the people who make the difference-those who actually spend the moncv 
-are not involved in the decisions. The best resources, the people who 
know how and where the money is spent, are not employed in arriving 

at the decision. 

The application of our management principles has led to the develop- 
ment of another approach-co^i concern. 



THE ART OF MANAGING 115 

Our first move was to call together a group of forty key managers and 
department heads. These people were the ones actually spending the 
money. We explained the problem to them, opened the books, and showed 
them our financial position. We pointed out that under present condi- 
tions we were not meeting our profit objectives. We asked them to share 
this problem, to help us cope with the situation. 

This cost-concern group discussed the problem at length and advanced 
a number of suggestions. Out of the group, a smaller committee was ap- 
pointed to put these suggestions into workable form. We started coming 
up with policies and procedures on a variety of matters. Long-distance 
phone bills were out of line, they decided, so they established a system 
whereby every person placing a long-distance call would receive a report 
from the switchboard after each call, listing the charges. Travel was an- 
other area of concern; they developed travel policies which provided for 
the elimination of extra-fare transportation, maximum-rate hotel accom- 
modations, and the like. 

Now, actually, the money saved by these measures represented a rela- 
tively small sum. However, the important point is that an atmosphere of 
cost concern was created. An attitude was adopted which began to pay off 
in more important ways. Managers considered carefully before spending 
money, and all manner of savings began to show up throughout the 
organization. This did not happen overnight. It took aproximately four 
months for this attitude to penetrate through the organization and begin 
to take effect. However, at this point the upward trend of costs was 
reversed, and the cost curve gradually started down. Since then, with only 
a few periodic exceptions, our costs have been under reasonable control. 

Again, the use of resources was a significant factor. The people who 
knew where the money was being spent and how were the ones who had 
to be involved in solving the problem. The decisions on costs were made 
at the lowest possible level— by those who spent the money. And finally, 
the most powerful concept of all was at work— people support what they 
help create. 



SUMMARY 

There have been many instances where the foregoing principles have 
been applied in our organization and have produced positive results. We 
have been guided by them in the organization of our packaging and ad- 
vertising functions. We have developed procedures based on these prin- 
ciples to handle product planning, sales forecasting, marketing strategy, 
and many other functions. We fully expect that there will be many other 
applications for them as we face the challenging problems that lie ahead 
of us. 



.|^ THE MANAGING FUNCTION 

We firmly believe in the idea of bringing resources-from within or out- 
side the organization-to the solution of a problem; the idea of decision 
making at the lowest possible level; the stimulating concept of creativity 
rather than adaptability. Underlying it all is what we believe to be a 
basic principle that people support what they help create. 

We believe that the ideas themselves have degrees of universalitv. The 
manner in which they are applied in any organization will vary. It is for 
this reason that I have intentionally avoided spelling out in detail some 
of the programs and methods we have developed. 

We managers are faced with the continual job of getting results. In 
working toward these aims, I believe we must spend more time: 

Obtaining a clearer perspective of our role as managers, both in our 
company and in our society 

Increasing our ability to understand ourselves 
Accomplishing results with and through people, we gain strength and 
understanding from the guiding principle that people support what they 
help create. 




Henning W. Prentis, Jr. 

FORMER CHAIRMAN OF THE BOARD 
ARMSTRONG CORK COMPANY 
LANCASTER, PENNSYLVANIA 



On Oct. 29, 1959, not long after writing his 
contribution to this Handbook, Henning W. 
Prentis, Jr., died at his home in Lancaster, 
Pennsylvania. He was seventy-five years old. 
With his death the business community and 
the nation as a whole lost a truly outstand- 
ing leader. 

Henning Webb Prentis, Jr., was born in St. Louis, Missouri, on July 
II, 1884. He attended public schools there and then entered the Uni- 
versity of Missouri. After obtaining his B.A. degree, he served as sec- 
retary to the president of the University of Missouri from 10,03 until 
190^. Folloiving this, he became secretary of the University of Cincin- 
nati for two years. In ic,oy, he received his M.A. degree from the Uni- 
versity of Cincinnati. A short time later he joined the Armstrong Cork 
Company and was continuously associated with the company until his 
death. 

Mr. Prentis served as assistant to the manager of the Insulation Di- 
vision of Armstrong Cork in Pittsburgh, Pennsylvania, until 1911, when 
he was appointed manager of the company's first advertising depart- 
ment. In 1920, he was transferred to Lancaster, Pennsylvania, and ap- 
pointed general sales manager of the Floor Division of Armstrong Cork. 
He was elected a member of the board of directors and one of its vice 
presidents in May, 1926, and three years later was promoted to the first 
vice presidency. Mr. Prentis served as president of the company from 
March, 1934, until April, 19^0, when he was elected chairman of the 
board. 

In addition to heading the Armstrong Cork Company, Mr. Prentis 
also served as a director of the Mellon National Bank and Trust Com- 
pajiy of Pittsburgh, the Borden Company, the Atlantic Refining Com- 
pany, and ALCO Products Incorporated. 



117 



Mr. Prentis' business career is in itself noteworthy, but it does not 
even begin to tell the story of his true greatness. He gave so unstint- 
ingly of his time to a variety of business and management organizations, 
educational institutions, and public service activities that several pages 
would be required merely to list the endeavors in which he has par- 
ticipated and in which he has held offices of importance. Unfortunately, 
space does not permit such a listing. Among other offices, however, Mr. 
Prentis was a former president, chairman, and director of the Na- 
tional Association of Manufacturers; a trustee of several colleges and 
universities; a director of the Council for Financial Aid to Education; 
and a member of the Research Board for National Security. 

Mr. Prentis received a host of awards and honors for his outstanding 
contributions to business and to the community. Honorary degrees 
were conferred upon him by fifteen colleges and universities, and he 
was made an officer of the Legion of Honor of France. He was the 1934 
recipient of the Taylor Key Award from the Society for Advancement 
of Management, and, in 1936, he received the Henry Laurence Gantt 
Gold Medal Award. He was also given the NAM Man of the Year 
medal in 1933, a Freedom's Foundation Medal in 1931, and a Gold 
Medal of the Pennsylvania Society of New York for "distinguished 
achievement" in 1933- 

Mr. Prentis' career is indeed worthy of emulation, not only by the 
aspiring young businessman, but also by those who have already at- 
tained a top management position. 

April, i960 



CHAPTER 5 

The Task of Managing 



The task o£ managing is essentially one o£ teaching. Teaching people 
to work together is organization. Teaching people to make goods is 
manufacturing. Teaching people to want goods is advertising. Teaching 
people to buy goods is selling. Teaching people to understand the opera- 
tions o£ an enterprise is public relations. 

No matter how good the teacher, however, he must have good human 
material to work with if his efforts are to be successful. So the first task 
of managing is the selection and training of good men and .vomen tor line 
and staff jobs. After all, one's competitors have in general the same kind 

118 



THE TASK OF MANAGING 119 

of bricks, mortar, machinery, and raw materials as one's own enterprise. 
Whether an enterprise gains position in the competitive race or falls back 
depends in the last analysis on one thing only, namely, the quality of 
brains that are available and the way those brains are trained to be used 
effectively at the right time. As someone has said, "Of the four M's in 
business— money, materials, machinery, and men— the last factor— men- 
is the most important." 



BUILDING AN ORGANIZATION 

The process of building an organization of superior individuals is a 
long and tedious one. It takes years to accomplish. In the case of the 
Armstrong Cork Company, we began about the time of World War I to 
select a group of able young college graduates twice a year to train for 
positions in our organization. The result has been management in depth 
—three or four well-qualified executives available for every important 
position in the organization. While this is unquestionably the company's 
greatest asset, it cannot be shown in dollars on the balance sheet. 

Securing Competent People 

To secure and hold superior men is, of course, a real problem. At the 
time our system of securing these men from college campuses by a syste- 
matic method of recruitment was inaugurated, it was considered a radical 
idea. Indeed, we may have been one of the first American corporations to 
follow such a plan. While the concept has generally been attributed to me, 
it was actually conceived by an early associate, J. E. Quigley, one of the 
most stimulating leaders with whom I have ever had the privilege of 
working. His conversations with me and with other members of our 
organization led us to decide later, in the face of some real opposition 
from older officials in the company, to try the idea— to go out and get 
young men, select them carefully, and train them meticulously. Although 
we recognized that this was a much longer process than trying to hire 
experienced men, we nevertheless felt that the end result would be a 
more cohesive organization. The decision was unquestionably sound, 
since it has given us not only a cohesive, aggressive organization but, as 
already mentioned, one that is richly endowed with management in depth. 

Importance of the Liberal Arts. It is worth mentioning here that we did 
not in those early days concentrate our recruiting efforts on technical and 
engineering institutions. Instead, we chose many of our young men from 
the campuses of liberal arts colleges. There has been much emphasis, and 
properly so, on the importance of scientific and technical training. At the 
same time, we should not lose sight of the fact that a liberal arts educa- 
tion, properly imparted, provides an ideal foundation for the well- 



-oA THE MANAGING FUNCTION 

rounded, civic-minded, socially responsible business executive. Our free- 
dom in America rests on the teachings embodied in the so-called liberal 
arts- the Greek idea of what constitutes a good life; the Roman concept 
of civic virtue based on a government of laws, not of men; the teachings 
of the great British and French political philosophers of the seventeenth 
and eighteenth centuries; and the Christian principle of the dignitv of 
the individual soul in the eyes of a sovereign God. 

Ever since the Civil War, we have been so engrossed with material 
things that we have more or less compelled our institutions of higher 
learning to concentrate on scientific and economic subjects directlv con- 
cerned with making a living, forgetting that dealing with the concrete 
does not always lead to knowledge of the abstract. Thus we have un- 
wittingly cut ourselves off from the philosophic sources from which our 
liberty in America derives. Essential as specialization is to the operation 
of modern industry, it is unfortunately self-defeating in the field of citizen- 
ship in a republic. To be an intelligent citizen in a free society requires 
a broad knowledge of history, economics, sociology, politics, and religion, 
together with a deep sense of social responsibility. 

Concomitantly, the same qualifications, coupled with constructive imag- 
ination, resourcefulness, and vision, are essential in the higher echelons of 
business management. It is for these reasons that we have concentrated 
so largely on the liberal arts colleges in seeking the capable men our 
organization needs. 

There is no assurance, of course, that the graduates of either liberal arts 
colleges or technical and scientific institutions will automaticallv be the 
type of men that business needs for management. A college education 
today is available to many who have neither the mental capacity nor the 
will to learn-both so essential to making the most of the educational 
opportunities offered. Thus the task of management in solving the prob- 
lem of careful selection becomes even more important. 

Techniques of Selection. There are many conflicting vie.vs about how 
best to select capable individuals. Many place their reliance upon batteries 
of intelligence and psychological tests. We at Armstrong have never done 
this and it may well be that we have guessed wrong m some instances 
where tests might have steered us on the right course. Nevertheless, our 
record of success would tend to indicate that there is a good deal of merit 
in the approach we have followed. Our primary emphasis has alwavs 
been placed upon a man's academic record, the extent of his participation 
in extracurricular activities, and most importantly of all, upon the results 
of multiple interviews by members of our organization. 

Our college recruiters, who are capable specialists in this field, visit the 
campuses regularly and talk individually with outstanding graduates-to- 
be The few who meet our special requirements are then invited to the 



THE TASK OF MANAGING 121 

home offices for further interviewing by not one but many men in our 
organization. Generally speaking, an applicant must create a favorable 
impression upon all who interview him before he is offered a position. 
There are exceptions, of course, but our general experience has shown 
that when serious differences of opinion exist among the interviewers as 
to the candidate's qualifications, the chances are the man will not perform 
well if offered a position. 

In the earliest days of this recruiting program, I visited college cam- 
puses myself and handled the initial screening process, but within a few 
years this task became so engrossing that it had to be handled by special- 
ists. Every man, of course, develops his own techniques for interviewing 
promising young men in order to penetrate the outward shells which 
cloak their real personalities. Certainly one of the tasks of managing is to 
develop and perfect an interviewing technique. 

My own system is to ask questions in rapid-fire sequence that test the 
young man's knowledge of where he has been, where he is at present, and 
where he intends to go. This tests not only his sense of destiny, if we may 
call it that, but also the speed of his reactions. It is my deep conviction 
that if an individual does not have a firm grasp of his personal past, pres- 
ent, and future, he may well be lacking in drive, deficient in the capacity 
to plan, and unaware that choices are available to him. Although this 
system worked well for many years, I discovered later that it was losing 
some of its effectiveness because of the careful planning of my associates. 
Our recruiters, upon securing what they felt to be likely candidates, would 
carefully drill them in answers to the kind of questions I would be likely 
to ask, so that when I finally got a chance to talk with the young men, 
they knew all the answers and their reaction time was exceedingly fast. 
One of the tasks of managing is to perceive when such things take place 
and to change interviewing techniques accordingly. 

It is not possible, however, to hold all the capable young men taken 
into an organization. We have lost some good men as the years have 
passed. The only way to have a perfectly stable organization is to have 
one made up of mediocrities whom no competitor would want. But when 
a group of thoroughbreds is assembled, some are bound to run off now 
and then. The figures show, however, that of 1,474 men we trained during 
the twenty-year period from 1938 to 1958, 58 per cent were still in our 
employ at the end of 1958. 

Approach to Training 

Selecting capable men is only a first step in the task of building an 
organization. The training of these men is equally important and cer- 
tainly a much longer and more exacting task. The first consideration in 
approaching this problem is to develop a well-organized and thorough 



, c>2 THE MANAGING FUNCTION 

training course. This involves careful delineation of the special knowledge 
and skills required by the organization and the building of special courses 
to impart that knowledge. We have always felt, however, that training 
courses must do far more than merely impart technical knowledge. They 
should also generate a sense of tradition, build faith in what the company 
stands for, and help the young manager gain perspective about his role 

in business. 

It has been said that tradition is the connective tissue which binds the 
present with the past. If we do not know something, at least, of the 
tradition of the business organization of which we are a part, we become a 
series of unconnected, uncoordinated, uncohesive units. For the Arm- 
strong Cork Company, we expect our training to help young people estab- 
lish in their hearts and minds a sense of responsibility for maintaining 
proper relations with employees, customers, stockholders, suppliers, gov- 
ernment, and all the other groups with whom we deal. If we fail to do 
this, the spirit of the company cannot be preserved. 

Hence, there is no more important task for the manager, busy as he is 
with tactical problems, than to indoctrinate his young people with the 
traditions on which his company rests and on which it has attained ^diat- 
ever measure of success has been achieved. Every organization has weak 
spots, but it also has strong points, and the task of the manager is to see 
that while he is correcting the weak ones-something he should never fail 
to be about-he should at the same time give his younger people that 
sense of quiet confidence which springs from a knowledge of ^diat has 
transpired in the past. While tradition is vitally important, it must ahvavs 
be coupled with the willingness to plunge into the unknown. An organ- 
ization hidebound by tradition, of course, is in an advanced stage of drv 
rot. Yet, without a knowledge of tradition, it is not possible to make the 
sound progress that should be achieved. 

Importance of Corporate Personality. This concept of tradition becomes 
even more meaningful and understandable when it is coupled m training 
programs with the idea of the individual becoming a part of the corporate 
personality of the business. Corporate personality is a very elusive thmg- 
intangible but very real. . 

If you go into a store to buy a pair of shoes and you are received 
courteously, you see the stock in good condition, your order is handled 
efficiently, you are fitted well, as you go out you may not stop to anahze 
it but you have a feeling that here's an outfit that is going for.s^ard. \ou 
go into another store where the stock is disarranged, you are treated 
courteously but in an offhand fashion, and you may say to yourself that 
here's an outfit that has seen its best days and is simply, resting on its 
oars. Or you may go into a store where the service is so poor that it is 
definitely going backward. 



THE TASK OF MANAGING 123 

Now what is it that creates such impressions? Whatever it may be, it is 
made up of many sources. This is what is meant by the corporate per- 
sonality of a business. Corporate personality is made up of how letters 
are written, how advertising is printed, the sort of illustrations used, the 
housekeeping of buildings, offices, and factories, the way the telephone is 
answered, the sort of men representing the firm, the way goods are labeled, 
shipped, and invoiced, the character of its correspondence. Everything 
that has anything to do with a business is all a part of its corporate per- 
sonality. 

Thus each individual in the business organization has a responsibility 
of helping make and maintain the personality of his corporation on the 
right basis. And this idea must be planted and thoroughly cultivated in 
the training program. The individual will grasp the idea only when he 
understands fully what the corporation stands for and has a knowledge of 
its historical traditions. Our formal training of young people has always 
continued for longer periods of time than necessary merely to impart the 
technical knowledge required. This has been done in order to impart this 
sense of tradition— to build real faith in what the company stands for— 
and to generate a sense of responsibility for maintaining the right cor- 
porate personality. 

Personal Leadership Training. The task of managing, however, goes far 
beyond the development of formal, well-organized training. Actually, of 
far greater importance is the personal leadership and training that busi- 
ness executives must give to their subordinates. Every study that has been 
made in the area of management development has shown the importance 
of this aspect of training. We learn by emulation a great deal of our 
business knowledge and our managerial skill. 

For example, some time ago, our personnel department made a study 
of the factors which contributed most to the personal development of 
Armstrong's top managers. Twenty-one of our ablest executives were 
interviewed and asked to state and evaluate the factors that had helped 
most in their growth as business managers. Without exception, each of 
these men put the personal leadership of a superior— at some time in his 
career— as the principal factor contributing to his success. 

It is the task of a manager to strive to set a good example for those 
under him and devote himself consciously to the task of their training 
and development. It is most unfortunate that in the study I have just 
mentioned these executives could not say that each and every manager 
under whom they had worked made a major contribution to their de- 
velopment. Of course, we would have achieved perfection in one of the 
most important tasks of managing if this had been true. 

In my own case, I can recall quite vividly the training and inspiration 
gained from those men in the organization under whom I worked. As a 



^24 THE MANAGING FUNCTION 

very young man in the company, I was privileged, during walks to the 
office of an early morning, to enter into conversations with C. D. Arm- 
strong, son of the founder, and with other top executives of the firm. 
Those conversations were vitally important to me. Many comments were 
made and ideas advanced that stimulated my own thinking and started 
trends of thought in my mind. 

Every business manager who attains success has stored in his mmd a 
wealth of information that can be of great value to the younger men m 
his organization. If he passes on without imparting that knowledge to 
others, his business has suffered a most serious loss. It should be his task, 
indeed his responsibility, to impart that information-that knowledge- 
that distilled essence of managerial skill-on a planned and continuous 
basis to the younger men in the organization. He should not allow it to be 
done more or less erratically in an unorganized, haphazard fashion. 
Although some of this information will take root and much of it, perhaps, 
will not, this does not minimize the necessity of his making an organized 
effort to do the job. Many managers have found it worthwhile to put 
down in black and white their thoughts and ideas concerning the task of 
managing so that this information is not lost but available in permanent 
form to their successors. In a real sense, that is the basic idea of this whole 
volume-to provide an opportunity for experienced managers to pass 
along their knowledge to younger men who have the responsibility of 
carrying forward the traditions of business strength and gro^vth m the 

years ahead. 

Training a Follow-up. Specifically, the manager has the task of seeing 
to it that he has trained at least one other person as a follo^v-up, ^vho ^vill 
be better if possible than he is at the particular job to which he is as- 
signed Granted that no manager can impart his managing skills and 
knowledge and understanding of the business to everyone under him. he 
at least can see to it that the one or two men immediately below him are 
trained to the utmost of his ability. In my own career, whatever suc- 
cess I may have achieved is due not so much to my o^vn performance but 
rather to my extraordinary good fortune in getting a group of men as- 
sociated with me who have acted as a life raft under me. It has been then- 
success, their efficiency and capability that have buoyed me up and cata- 
pulted me into responsibilities never dreamed of in the early days of mv 

career. . 

By the same token, any executive who not only fails to recognize the 
fact that his success depends upon the skill, ability, and energv of those 
under him, but also fears the budding ability of his subordinates, is 
di^^ing his own grave. There was a day in American ■ business when 
executives who had this attitude were rather plentiful. Fortunately, 
there are not many of this type left, but one task of managing is to com- 



THE TASK OF MANAGING 125 

bat this attitude wherever it is found. If any manager discovers in his 
operation an individual, man or woman, who has this narrow charac- 
teristic—this compound of jealousy and fear— who is afraid of the successes 
of someone else associated with him, the manager can render no greater 
service than to strike at the root of that feeling before it has a chance 
to develop into a fixed habit. A manager with this narrow attitude is 
not competent to lead others. As mentioned earlier, all the other three 
elements in business, that is, money, material, and machinery, can be 
present in abundance, but unless competent men are directing their use, 
a business enterprise cannot prosper. 

Perhaps the vital importance of personal leadership in training others 
can be illustrated indirectly by an experience common to all top execu- 
tives. Upon attaining the top position, they are at once aware of the 
extreme loneliness of the position. No longer do they have a superior 
to turn to for guidance and help. I vividly recall the feeling when I was 
made president of the Armstrong Cork Company in 1934 and discovered 
that there was no longer any shoulder left for me to lean on. In whatever 
post a man labors, he never ceases to crave sources from which to seek 
help and assistance. Everybody likes leadership of the right kind. The 
manager must recognize this desire in those who report to him. 

Leading versus Driving. There are, of course, different ways of apply- 
ing leadership. Years ago there was a great deal of driving and not much 
of leading. The development of the techniques of leadership— learning 
how to inspire a man to give the best that is in him instead of ordering 
him to do a specific task— has been one of the great managerial advances 
in recent decades. Yet there are no hard and fast rules to guide the 
manager here. Much depends on the individual. Sometimes driving is 
the best way— the only way— to get needed action on time. Each manager 
knows— or should know— the men in his own organization, those who will 
respond best to leading and those who, on occasion, may require some 
driving. But the best manager is a leader rather than a driver. I came 
to the conclusion, years ago, that a man may be tolerated if he can 
be motivated by 85 per cent leadership and 15 per cent drive. If he 
needs to be driven more than 15 per cent of the time, however, one might 
as well look for a new man. 

Obviously, to be a good manager in the area of personal training, an 
executive must be aware of the motives that activate modern man. Some 
years ago. Dr. Robert L. Thorndike, the famous psychologist at Columbia 
University, defined these forces as follows: 

Next to hunger, sex, physical safety, and intolerance of bodily pain, come five 
other forces in our present American and social life: {a) the satisfyingness of 
activity, mental or physical, at which one can succeed; {b) the satisfyingness of 
mastery; (c) the satisfyingness of submission to the right kind of leadership; {d) 



i9g THE MANAGING FUNCTION 

the satisfyingness of company and cheerfulness; and {e) the satisfyingness of that 
feeling that one is somebody of consequence-the sense of approval. 

By the "satisfyingness o£ mastery," Dr. Thorndike means that every- 
one, whether he works with his head or with his hands, likes to feel that 
he is a real craftsman and not merely a saw-and-hammer carpenter, in 
other words, that one has really mastered his vocation and is the captain 
of his own fate. And in the area we are discussing here, namely, the 
responsibility of the manager to train his subordinates and set a good 
example for them, we are appealing to "the satisfyingness of submission 
to the right kind of leadership." 

For good management and good results, "the satisfyingness of compam 
and cheerfulness" cannot be overemphasized. After all, the man who is 
unhappy in his work or dissatisfied with his environment or his associates 
cannot function with maximum efficiency. The good manager, therefore, 
will make every effort to create the necessary physical conditions under 
which a man can give his best. 

But of all the five forces which Dr. Thorndike lists as necessarv m 
motivating modern man, the fifth factor, "the satisfyingness of that feeling 
that one is somebody of significance-the sense of approval," is the most 
important in our industrial age. It is the task of the good manager to 
understand this and to make his men feel that they are a part of a 
living, functioning organization to which they are truly important. The 
realization of this objective will add immeasurably to the zest and effi- 
ciency with which men tackle the tasks to which they are assigned. 

Setting the Organizational Atmosphere 

So much for selection and training, both formal and individualized. In 
my early days in management, I used to think the only task a manager 
had was to lay plans and execute them, but I soon found out that there 
is another function of a good manager that is equally important, namely, 
the creation of an atmosphere of sympathetic understandmg among his 
associates, which will ensure the carrying out of his cherished programs. 
So let us now consider the task of managing from the standponit of 
setting the right atmosphere in the organization-the kind of atmosphere 
that will encourage the full development of men to their maxmium 
potentials. Certainly one of the first tasks in this area is to devise sound 
salary compensation policies, sound policies for the promotion of indi- 
viduals on their merit and performance records, and sound programs 
to provide for their reasonable economic security. These things are 
basic, of course, and while they are generally recognized, there are 
occasions when their full significance is overlooked or not given suf- 
ficient recognition. 



THE TASK OF MANAGING 127 

Yet the manager who understands human psychology will realize that 
a pay check alone never satisfied anyone. All men, being tarred with the 
same stick, want a chance to give expression to their creative instinct. In 
the last analysis, money, important as it is, leads only to multiplication. 
When I graduated from college in 1903 I started to work for I50 a month. 
I paid $3.50 a v/eek for my meals and $8 a month for my room and had 
more money then— or thought I did— than at any time since. In those days 
I had two pairs of shoes, one for Sunday and one for weekdays; today I 
have perhaps a dozen pairs. But these dozen pairs of shoes of different 
styles and colors can still be worn only a single pair at a time. There are, 
I suppose, a half dozen beds in my home; but I can sleep only in one bed 
at a time. And I can wear only one suit of clothes at a time. So after one 
reaches a certain point, physical things are merely multiplication. If a 
man relies only on physical things to give him happiness, he will find as 
he gets older that his life is a pretty empty proposition. Hence, to be 
content, our employees must feel the satisfaction and the thrill of being 
active participants in the enterprise as a whole— an enterprise of which 
they are a necessary part. It is a vitally important task of managing 
to help employees gain this satisfaction. 

Applicable here is the old story about a man who visited a cathedral 
while it was under construction and talked with three of the stone- 
masons. He asked each of the masons what he was doing. Said the first, 
"I am working for |io a day." Said the second, "I'm cutting stone." The 
third one replied, "I'm helping to build this cathedral." Now the first 
mason was an automaton, the second an opportunist, and the third, 
quite clearly, an idealist. The first fellow was serving time, the second 
was serving himself, and the third was serving society. It is a task of 
managing to generate the feeling of that third man in the hearts of all 
employees, and if it can be accomplished successfully, the enterprise will 
be well along the road toward achieving its goal. 

Practicing Self-restraint. Setting the right atmosphere in the organization 
goes well beyond sound salary, promotion, and security policies and 
recognition of people as individuals. It involves a number of specific 
tasks for the manager. One of these— and certainly an important one- 
involves self-restraint. Many executives feel that they must do everything 
themselves— make every decision, every investigation of facts, and have the 
last word on all matters. While an extremely capable man may operate 
effectively in this manner, he is not a manager if he does so. He is wasting 
his own talents on needless detail and at the same time denying those 
under him an opportunity to show what they have and to develop their 
capacities. Many managers excuse their failure to give opportunity to 
subordinates by the rationalization that they do not have sufficient time to 
train others to do the job; that it is easier and quicker to do it themselves. 



, oo THE MANAGING FUNCTION 

To be sure, training takes time. To be sure, it involves frustrating ex- 
perience To be sure, it seems occasionally that time is being wasted. But 
there comes a time when the talents and abilities of subordinates become 
apparent, and the manager can thank his lucky stars that he has taken 
the hours and days and weeks required for thorough trammg. A\ hen 
that day arrives, the manager discovers that he has multiplied his time 
and talent rather than wasted them. 

For example, every executive knows that it is impossible to evaluate a 
problem until its components are known. This takes a lot of thinking, 
but from constant practice he can do it faster than his subordmates. 
Hence there is a temptation to save time by reviewing with them only 
the end result of his thinking instead of sharing with members of the 
organization the actual process of "thinking out" the problem. He mav 
save a few minutes by not sharing, but the chances are also that the 
capable people in his organization may never learn how to break down 
problems into components. He will never have that buoy of a "life 
raft" under him. A manager is working not only for himself but for his 
organization as well when he takes the time to develop a sound basis of 
relationship with the men under him. 

As a manager gets older, his responsibilities increase. The number 
of people wanting to see him and the number of things thrown m his 
lap for decision will get more numerous. The only way he can preserve 
for himself a longer day and increase his usefulness is to be willing to take 
the time early in his career to go through the arduous task of training 
subordinates. Not only will this multiply his own talents, but it also .vill 
help set a good organizational atmosphere. 

Three Categories of Responsibility. In addition to sharing .dth sub- 
ordinates his thought methods and processes, the manager should make 
a definite delineation of responsibility and authority with his immediate 
associates. Years ago when I was working closely with John J. Evans, 
who was then president of our company, I was fortunate enough to have a 
great deal of authority and responsibility delegated to me. The nvo of us 
wanted to work together in close coordination, so we developed a .v-orkmg 
arrangement between him as the chief executive officer and me as his 
immediate assistant, which served us both well. It defined three categories 

of authority for me. 

The first category covered questions where policies were clearly estab- 
lished and where I could make a decision without consulting him at all. 

The second category of authority concerned matters on which I kne^v 
well what his views were so that I could take action myself, but ^vhich 
were important enough for me to keep him fully informed as to what 
actions were taken. 

The third category included matters which he and I had not discussed 



THE TASK OF MANAGING 129 

and on which I had no idea what his views would be. Here it was 
necessary for me to stop, look, and listen. In such cases it was up to me 
to study the question and make a recommendation to Mr. Evans for 
his decision. Then a policy on it was established, and if the same 
question came up again, it could be handled in category i or 2, as 
the case might be. This simple plan of three categories is recommended 
to all managers as a means of promoting a smooth-working relationship 
between them and their immediate associates. 

Three C's of Good Management. In addition to delineating these areas 
of responsibility and authority, a business manager, in order to be a real 
leader and establish the proper atmosphere within his organization, 
must observe what we may call "the three C's of business management." 
These three C's are Common Counsel, Courteous Consideration, and 
Concede Credit. Let's discuss each of them briefly. 

It is a task of managing to make as many problems as possible a matter 
of common counsel. People will always cooperate and collaborate more 
effectively in carrying out a policy if they feel they have had a voice in 
making it. Many efficient executives are tempted to do everything them- 
selves, as we have already noted. But it is wiser to allow associates and 
subordinates to have some part in developing a project and in reaching 
policy decisions so they will have a personal interest in carrying the 
project through to fruition. "Our plan" is always better than "my plan." 

There has been much written and said in recent years about the prob- 
lem of communication in business organizations. What possibly could 
do more to establish good communication and to achieve an understand- 
ing of the whole tone and shade of meaning of a proposed action than for 
subordinates to have a part in its development, at firsthand? Of course, 
this matter of common counsel, if carried too far, can develop into "doing 
business by committees" and become a means of shouldering off respon- 
sibility that should be assumed by the manager himself. It is the task of 
managing to have the good judgment to know when and how long to 
consult and when to face the issue, make the decision, and proceed with 
action. 

All too frequently "getting the boys together" to reach "complete 
agreement before we go ahead" results in such a dilution of an original 
program that the idea loses its sharp, clear structure in a series of com- 
promises. It would be nice if there were some sort of blood test or 
physical test that could be administered to a given scheme to determine 
how far consultation should be carried and when it is unnecessary or 
should be minimized. 

Our wives tell us that when they are making jelly, there comes a 
time in the cooking process when the stuff must be taken off the stove or 
it will all go to sugar. Similarly, there comes a time in thinking about a 



. QQ THE MANAGING FUNCTION 

problem or in consulting with associates when a leader-i£ he is a good 
manager-must ''take the stuff off the stove" and "jell it," right then and 
there. A good manager is in this respect like a good cook. 

There are some artificial extracts that can be dropped in to make 
the jelly jell. But the result may not have quite the flavor the old 
jelly did There are some organizations that have a lot of consultation 
and then drop the "extracts" in. Thus they do not get good, clean-cut 
policy that is dynamic, that someone believes in and is willing to put 
through and prove its rightness. When things get too diluted, an organiza- 
tion cannot move forward as it should. Within these limits, however, com- 
mon counsel can be used effectively to set a good organizational at- 

mosphere. 

The second C is Courteous Consideration. This does not mean mere 
politeness-like a pleasant "good morning"-but something that goes a 
lot deeper than that. Let us say that toward the end of a trying dav, as 
the manager is about to leave his office to meet his wife some.vhere for 
dinner a younger man comes to see him to discuss an idea. It may well 
have taken a good deal of courage for him to broach his suggestion to the 
manager. Perhaps, after he has spoken two sentences, the manager knot's 
that the suggestion is impractical and of no value. But if he brushes off 
the subordinate, he will have discouraged him and perhaps stifled some- 
thing that should be encouraged for the future. On the other hand, if 
the manager will take the time to listen to the subordinate, give him un- 
divided attention, and then say, "I'm grateful to you for coming in 
he will have demonstrated real interest and consideration and encouraged 
the subordinate to go on trying to think constructively. That is Avhat 
is meant by courteous consideration in business. 

The next C is to Concede Credit. Nothing costs a man so little and 
nothing can provide more pleasure than to give the other fello.v credit 
for something he has done well. It is all the more effective to do it 
publicly, if it is appropriate to do so. There is no way to Itibncate the 
wheels of an organization like giving credit where credit is due. There 
may be days when no one seems to do anything well-when there seems 
to be nothing to praise-but most of the time, if the manager will look 
for it he will find something and someone worthy of favorable comment. 
And it is a warming experience to see the other fellow's face light up in 
appreciation as the manager concedes credit. 

By the same token, when the manager finds something that does not 
represent a man's best, he should call it to his attention. A good manager 
will always mingle praise with intelligent, constructive criticism and thus 
lead subordinates into areas of greater potential. All this goes back to 
a subject discussed earlier-that people consciously or unconsciouslv 
emulate to some degree those above them in authority and responslblht^. 



THE TASK OF MANAGING 131 

To lead people properly, a good manager must be ever mindful of the 
fact that he lives in a glass house, that others watch him, note the 
subtleties in his manner and approach, and take their cue from them for 
action and behavior. The good manager, then, will decide what manner 
of man secures the best results for his organization and try to lead that 
life as a model for others to follow. 

Importance of Setting an Example. For instance, if hard work is what 
he expects, then he himself must be willing to put in the necessary 
extra hours. If he expects honesty and integrity, he should never com- 
promise the truth to the slightest degree. If he expects patience, con- 
sideration, and cooperation— these are qualities he must strive to include 
in his own conduct and demeanor. If he expects his subordinates always 
to give the best that is in them, he himself must also have a passion for 
excellence— excellence for its own sake. If he believes as did Disraeli, the 
great Prime Minister, that "constancy of purpose is the essence of 
success," then he must not vacillate from his announced goals and 
intentions. 

Two other practices should be mentioned here in connection with 
setting the organizational atmosphere. They are holding a mirror up to 
a man so he can see his performance as others see it, and facing up to 
the hard fact that some men are not capable. 

Fear and uncertainty breed inefficiency. Every member of an organiza- 
tion has the right to know how he is doing— how he is regarded by 
his supervisor and associates. If he does not know, he may well spend 
countless hours— hours that could better be spent in constructive work— in 
speculating whether he is doing well or whether there are certain 
capacities in which he is deficient. The task of the manager here goes 
well beyond constructive criticism. It is his duty— and sometimes a 
most unpleasant duty— to hold a mirror up to a man for whom he has 
the utmost friendliness and let that man see the impression he is creating 
in the manager's mind and in the minds of associates. Frequently the 
impression is not the one he thinks he is creating or wants to create. 
And yet, difficult as this task is, it is actually an act of friendship. A 
man's best friend is one who will help him see himself as others see him. 

Years ago, my superior used to call me in— quite regularly— and let me 
know the things I was doing that were causing some resentment among 
my associates. Some of his comments hurt my pride at the time but I 
managed to get over it. One incident is still quite vivid in my mind, 
and it serves to emphasize that a manager truly lives in a glass house. 

The office I had then opened onto a corridor, and many associates 
would stick their heads in the door from time to time to make a wise 
comment or two. Ordinarily this was all right, but it became extremely 
irritating when it interrupted a telephone conversation or a train of 



132 THE MANAGING FUNCTION 

thought being dictated. For the sake of efficiency, I locked that door 
so that entrance to the office could be gained only through the adjoining 
secretary's office. Immediately the word got around that I was getting 
hoity-toity and stuffed shirt because people had to go through two 
doors to reach my office. The "mirror treatment" helped me see the error 
of my ways. The door was unlocked, and thereafter I took it on the chin, 
interruptions and all. 

In addition to holding the mirror up to subordinates, it is a task of 
the manager to check up on himself-to determine the impression he is 
creating. He can learn this by inquiring of close personal associates, by 
adroit questioning of others, and by careful listening to the nuances of 
their comments. 

Facing Up to Problem Cases. The second practice-facing up to the 
problem that some men are not capable-is too frequently avoided 
by managers. This is understandable because one of the most difficult 
things a manager faces is to have a man who is faithful, who is loyal, 
but whose best is not good enough. But the manager is only compound- 
ing his difficulties if he allows his heart to run away with his head. I 
have done so on occasion, but always to my great regret and ah\-avs 
to the disadvantage of the man concerned. A man gains nothing, if 
there is a cancer in his arm, face, or throat, by not going to a surgeon 
and having it taken out while it is still small. 

Similarly, if a manager has a man who, despite all efforts to help him, 
is still not suited to the task, the only kind thing to do is to face the 
situation squarely; put it up to him; let him know that he will be placed 
in some position he can handle; and caution him against resigning in a fit 
of temper. But in any event, get him out of the spot for^diich he is 
not suited. No good manager temporizes with situations like that. 

Communication Themes. Another and certainly vital task of managing 
in the complex and ever-changing kaleidoscope of today's world is that 
of communication. This is all-important in establishing the proper 
environment within a business organization. Much has been written and 
said in recent years about so-called "employee communications," and a 
good bit of the comment tends to make communications seem a complex 
and difficult science. While admittedly the subject is complex, com- 
munications are really not mystical or in the realm of hocus-pocus. Harold 
Smiddy, of General Electric, maintains: "A great deal could be accom- 
plished if we would consider communication in the light of this simple, 
four-word formula: talk to the guy." That may be an oversimplification, 
but the formula has much to recommend it. We sJwuId "talk to the guv," 
and when we do, we should tell him why. In no other wav ^viU he be 
able to gain an understanding of what the business is all about and ho^v 
his own personal fortunes are related to it. 



THE TASK OF MANAGING 133 

When managers talk and write to employees, they should strive to 
bring about that broad and sympathetic understanding which is so 
essential to the continued progress of our American economy of free 
enterprise. To do this, the manager must approach matters from the 
employees' point of view, must deal in specifics that are meaningful and 
understandable to them, and must be forthright and scrupulously honest. 

In this field of communications, there are at least six basic themes upon 
which the manager should elaborate and expand while playing them over 
and over again until the themes become as familiar to employees as a 
favorite symphony is to a music lover. It is quite easy to state these 
themes: 

1. Productivity is the key to plenty. Only by increasing total output is 
it possible to increase the worker's share. 

2. Capital is essential to provide the tools and equipment which multi- 
ply human effort and make possible greater output per man-hour 
worked. 

3. Profit represents the "wages" for the work that is done by capital, 
without which savings would not be invested. 

4. Business of necessity operates in the public interest because of the 
customer's right of choice in a free market. 

5. Management is interested in the personal welfare and security of 
its employees and their dependents. 

6. Lasting job security for everyone connected with an enterprise de- 
pends upon satisfied customers. 

These themes, of course, are stated in foreshortened and simplified 
terms. They are, however, statements of fact, as all managers fully realize. 
The task of a good manager, then, is to promote understanding and 
acceptance of these fundamental truths by his workers, by his daily actions 
as well as by his words. 

Getting Accurate Information. Another aspect of communication— fully 
as important as the "outgoing" type of communications discussed above 
—is often overlooked by managers. It is communications up and down 
and across the various levels of management within an organization. 
These channels of communication must be kept open if the managers 
at every level of the organization, and particularly those at the top, are 
to have a clear and accurate picture of what is transpiring within the 
organization and if they are to have the facts-the accurate information- 
upon which to base good decisions. 

If a manager at any level of an organization wants to know the 
true facts, he can usually get them. However, he can without trying set 
up a situation which will ensure against his getting truthful information, 
merely by closing his mind and letting those with whom he associates 
know the kind of information he wants to receive. Once he does this, 



, Q . THE MANAGING FUNCTION 

you may be sure that the manager will get only that which he wants 

to hear. . 

This aspect of communications is of greater importance m ettective 
management than doing a good job with the outgoing communication 
on the six basic themes mentioned earlier. How to do it.^ There is no 
simple formula or easy solution. Each manager will have to devise his 
own means of keeping the channels of communication open m his or- 
ganization. Suffice it to say that he himself must keep an open mmd and 
must diligently observe the three C's we have previously mentioned as 
basic prerequisites to keeping the communications flowing freely. 

Learning to Listen. Further, there are two general suggestions to 
follow. The first of these is to learn to listen. So many managers, imbued 
with the conviction that they are right and "know all the answers, 
find themselves talking in situations when they should be listening. Cagey 
old Clint Murchison has stated this succinctly: "You am't learnm 
nothing when you're talkin'." So managers should address themselves 
assiduously to the task of gagging themselves when they should be listen- 
ing to their subordinates. And definitely they should refrain from moraliz- 
ing, preaching, issuing judgments, and making similar commitments 
upon the facts their subordinates are presenting. Frequently, subordinates 
"beat about the bush" before they get to the subject at hand. If the 
manager in such a situation delivers a few moral judgments on pre- 
liminary comments, he tends to intimidate the subordinate, who m turn 
"clams up" and stops giving reliable information. 

Learning to listen is a basic art in human relations that every man- 
ager must learn and master if he is to be successful. One simple rule- 
learned by hard experience-is helpful in mastering this art. It is that 
the manager should refrain from asking leading questions-the kind of 
questions that contain the implied answer the manager wishes to hear. 
For example, if he says, "Things are running more smoothlv m X 
department since we made that change, aren't they?" it should not be 
surprising if the subordinate assures him that things are indeed running 
more smoothly. The fact of the matter may be, however, that things 
are not running smoothly, that they are much more confused since 
the change was made. By asking the question in this manner, the 
executive precludes getting an honest answer. 

Dynamic leaders who attain the rank of top management are usuallv 
the type of men who make things go. Because the top position is a lonely 
one as we have observed, there is also a strong desire to be reassured 
by those below him as a substitute for a shoulder to lean on. Conse- 
quently, since the dynamic manager wants to make things go and at the 
same time desires to be reassured, he tends to ask leading questions 
which will bring the reassurance that things are going well. But things 



THE TASK OF MANAGING 135 

are not always going well, so the asking of leading questions prevents 
him from learning the truth. Thus, if the manager will consciously 
refrain from asking questions of this type and instead ask questions that 
cannot be answered yes or no, but which require of the subordinate the 
statement of a definite opinion supported by facts, he will usually gain 
a much truer picture of the situation. This is one important rule to 
follow— even though a negative one— in keeping the lines of communica- 
tion open. 

Importance of Being Observant. It is the task of the manager also to be 
exceedingly observant. When he is working with or talking with sub- 
ordinates, he should watch for the nuances of expression: the things the 
one reporting to him leaves unsaid as well as the things that are said; 
his facial expressions; what he does with his hands; and other details. 
The subtleties conveyed in this manner will frequently give the manager 
a tip as to what the subordinate is trying to say, or would like to say if he 
had the courage. Careful listening, refraining from leading questions, 
and close observation should help immeasurably in getting accurate infor- 
mation up the line to the very top. If this process is followed by the 
chief executive in an organization, the chances are that it also will be 
followed by managers down the line simply as a matter of emulation. 
Thus he will have opened the channels of communication up and down 
the line— certainly a healthy state of affairs. 

Managers who combine these talents and skills have mastered the key 
trait of good human relations— a trait which may be called "sensitive- 
ness" to the feelings, aspirations, and desires of others with whom they 
associate. A good manager is a good herder of his sheep. This does not 
mean that he treats them as though they were sheep, but rather that he 
looks after the wants and the needs of the fellows under him. The more 
of a driver a man is, the less sensitive he is to the needs of the men 
under him. And the more sensitive he is when he thinks his own 
prerogatives are being trespassed upon by those above him, the less 
sensitive he is to the needs of the people who are below him. A major 
requirement of a good manager is to be sensitive to the needs of those 
who work under him. 

Expansion for Opportunity. There is still another managerial task in 
setting the right atmosphere in the organization. It is vitally necessary 
to pursue a sound, well-integrated program of expansion, not only to 
assure steady growth and profitability of the enterprise, but also to pro- 
vide opportunities for advancement for the capable young managers 
within the organization. Indeed, a static organization— one with no 
prospects for sound growth— is one that will virtually guarantee the 
loss of the most capable young men in it. The thoroughbreds will charge 
out of the corral. 



,„- THE MANAGING FUNCTION 

lob 

I£ the manager's goal is to achieve stabiHty along with growth, he 
should strive for a balance in his product lines among consumers 
durable goods, consumers' nondurable goods, and producers' goods. 
It is difficult to say, of course, just what that balance should be, since 
certain types of products have wider fluctuations in sales, makmg more 
profit in good times and more losses in bad. To make producers' goods, 
for example, requires a tremendous capital investment, and when busmess 
is slack that fixed investment is there, with competitors fightmg all the 
harder for the business that remains. At Armstrong we achieved a better 
balance between durable and consumer goods by going into the glass 
business some twenty years ago, and ever since, in considering expansion 
opportunities, we have always weighed not only the potential profit of 
new ventures, but also what contribution they would make to the bal- 
ance of the business as a whole. 

As a business expands, there will be opportunities for advancement for 
capable people within the organization. The question then comes up_ 
when positions of relatively greater responsibility are created, should 
these posts be filled from inside the organization or outside.' Certamlx a 
policy of promotion from within does much to create a dvnamic organiza- 
tional atmosphere, and in general this is the policy we have followed 
consistently at Armstrong. This is the career concept which fosters esprt 
de corps, good performance, and the development of individuals. Onh 
in a few instances, when the special skills required were not to be found 
in the organization, have we gone outside to engage specia ists. 

Yet promotion from within has one drawback. It can result in inbreed- 
ing and a provincial, or narrow, attitude. To guard against this, we have 
always encouraged-indeed urged-our people to make the maximum use 
of outside contacts, both in regional and national organizations and in 
their local communities. In addition, we have used the services of out de 
experts to check our operations and procedures. It is a fundamen.a task 
of the manager to check up constantly, not only on his personal perform- 
ance as we mentioned earlier, but also on the performance of his organi- 
zation by checking it against the best practices in industry. 

Thus far we have dealt with the tasks of managing in the area of 
selecting capable personnel, training them in technical skills and unbunig 
them w!th a sense of tradition and corporate responsibxhty and setting 
the organizational atmosphere that will encourage their development 
and effective performance. These are unquestionably the major tasks- 
the most important ones to successful operation. An enterprise can be no 
Letter than its organization. At the same time, however, Y7"-",,""t 
finely tuned organization will not of itself move forwaxd to.vaid the 
goals of the enterprise without conscious direction from management 



THE TASK OF MANAGING 137 

at the top. Therefore let us now examine some of the tasks of managing 
in the field of operation. 



OPERATIONAL TASKS IN MANAGING 

The business manager has a basic responsibility to set goals and 
objectives for the enterprise, both short-range and long-range. We have 
encouraged this viewpoint in younger men at Armstrong by following 
a "five-year-plan" program. In these sessions, which are held annually, 
the manager of a given commodity is forced to look squarely at his 
problem and ask himself, "Where do I want this business to be four or 
five years from now?" He is literally forced to "think big"-to jar himself 
out of the daily routine, to lift his eyes and mind from the papers on his 
desk and look ahead. 

Thinking and Planning 

To do this he discovers he must think and plan. His mind at first 
may be a blank, but if he will get down in black and white the product 
of his thinking, as he mulls over the problem, he will make steady 
progress. His first thought may be just a note jotted down. Then another 
idea will come, another, and another. The first thing he knows, he will 
begin to see a bony structure on which more and more muscle and 
meat can be placed. And finally, he will have the basis for a good, sound, 
consistent plan for the future. 

Types of Thinking. The importance of clear thinking on the part of the 
manager cannot be overemphasized. To be sure, every business manager 
can think~and quite clearly on most occasions-but the executive in 
the top managerial spot must develop the art to the ultimate. Thinking, 
of course, is the hardest kind of work. Sir Joshua Reynolds once said, 
"Men will go to any length to avoid the painful necessity of thinking." 
The man who knows "how" will always have a job; the man who knows 
"why" will be his boss. The manager must know "why," and to know 
"why" he must be able to think. 

There are four kinds of thinking. The first is what the psychologists 
call reverie, or daydreaming. We just sit and roll ideas around in our 
minds. We think about the vacation we had last year, the fish we are 
going to catch next summer, the smart thing the youngster said yester- 
day. We let our minds meander along on any idle thought that occurs 
to us. We just daydream. Everyone does this, and a certain amount of it 
cannot be avoided, but after all it is a pretty low level of thinking. 

The second order of thinking is of a higher nature: decision thinking, 
it is called. If someone asks, "Will you go downtown tonight to have 



jgg THE MANAGING FUNCTION 

dinner with me?" the person of whom the question is asked must 
disturb himself, no matter how lazy he is, to say "Yes" or "No." And yet 
there are many people who cannot make up their minds quickly even 
about such simple questions as this. The suggestion here is not necessarily 
to make hasty or reckless decisions, but rather to train the mind to get 
the facts quickly, to go out on the springboard over the pool of the 
future as far as the facts will take us, and then be willing to take a dive, 
even when we do not know exactly how deep the water is. A man who 
is afraid to make a decision with promptness after he has the facts will 
never amount to very much in business. To be sure, he is bound to 
make a certain number of mistakes. He cannot possibly be right all the 
time. But it is much better to make a mistake quickly if it must be made 
and get it over with than it is to hem and haw around and be unable 
to reach a reasonably prompt decision. 

The third order of thinking is of an even higher type, called delibera- 
tive thinking, or rationalization. If someone asks, "^Vhy are you a 
Republican or a Democrat?" or "Why do you attend church?" or "Do 
you believe in higher education?" deliberative thinking is required in 
order to arrive at an answer. The average person is lost when asked such 
questions. He immediately begins to marshal every fact he can on the 
pro or con side of the particular problem involved. AVhile this is a very 
valuable thing to do, it has been said quite truthfully that we must 
beware of this process because so frequently "deliberative thinking reallv 
amounts merely to rearranging one's preconceived prejudices." 

It is most helpful for the business executive to quiz himself on such 
matters. When he comes across a question that his reading has suggested 
to him, he should ask himself, "Now what do I really think about 
this?" "Do I really believe it?" He will be surprised, when he stops to 
analyze such questions, that many ideas firmly imbedded in his make-up 
-ideas he holds with deep conviction-are based upon extremelv tenuous 
grounds. He may hold the conviction because of something he read years 
ago, something a teacher told him, or something his mother or father 
told him, or he may just have picked it up from some source long 
since forgotten. Careful analysis may well show him that there is verv 
little solid ground for the opinion that he has so fervently held for so 
many years. On the other hand, he may find that he has very solid 
grounds for it. 

There is nothing that will help to develop a man's mind more or 
that is more productive in enabling one to do a good job mentally than 
to do some real, careful, deliberative thinking. It is something that can be 
carried on at any hour of the day or night. It does not require books or 
even pencil and paper, and the manager certainly does not need any 
company-only himself. Deliberative thinking is trying to analyze and 



THE TASK OF MANAGING 139 

catalogue and codify. It is one of the most rewarding exercises that can 
be performed in developing the ability to think clearly. 

Finally, of course, there is the highest type of thinking-creative 
thinking. It is the one factor that accounts for all the progress the 
human race has ever made. Without creative thinking, we would still 
be savages wearing skins in our cave dwellings. 

Many a manager may well say, "I can't do creative thinking." Well, 
if he cannot, he is not capable of handling the tasks of managing— and 
anyway he will be quite wrong. Every manager does a certain amount of 
creative thinking every day. My own experience has been that when 
something is thrown at me, some problem that seems insoluble, or when 
I am called on to talk on some subject that I don't know anything 
about, I begin to think about it, and my mind is a blank, like a big, dry 
sponge. But if I keep thinking about the matter long enough, sooner or 
later some ideas will develop. If you hold in your hand a big, dry sponge 
and take a heavy pitcher of water and let the water drop, drop, drop, 
drop on the sponge, sooner or later the sponge will become saturated 
and a little trickle of water will drop down from the sponge to the floor. 
That is the way my mind works. If I have the mental determination and 
will power to think long enough about anything, to read and use any 
sources of information available, I will eventually saturate my mind 
with that particular subject and some idea is bound to take shape. The 
resulting idea may not be very valuable, may not be very important, but 
at least it is possible to force ideas out of one's mind if one is willing 
to pay the price to do it. As a man thinks, so is he; or as Descartes, the 
great mathematician, said, "Cogito ergo sum," the Latin for "I think, 
therefore I am." In other words, thinking is the preeminent characteristic 
of the human being— the attribute that distinguishes man from brute 
creation. 

Genius— the Product of Effort. When creative thinking is discussed— and 
it is a good bit these days— the impression seems to be given that a man 
must be a genius to do any creative thinking. That is not true. Genius 
is largely self-developed. This was illustrated vividly in the biography of 
Alexander Hamilton, the man who had such a remarkable career in the 
early days of this nation. This man of dubious birth, who had developed 
a brilliant mind, observed, "Men give me credit for some genius. All 
the genius I have lies in this: When I have a subject at hand, I study 
it profoundly. Day and night it is before me. I explore it in all its bear- 
ings. My mind becomes pervaded with it. Then the effort which I have 
made is what people are pleased to call the fruit of genius. It is instead 
the fruit of labor and thought." And so it is with the business manager. 
He can do creative thinking if he is willing to pay the price in sheer 
effort. 



140 



THE MANAGING FUNCTION 



In addition to the capacity to think, the manager must also develop 
the ability to analyze and synthesize-the ability to "take apart" and 
"put together." Analysis is the first process in trying to solve any prob- 
lem of management. By breaking a problem down into its component 
parts and studying them individually, it is possible to see them in proper 
perspective. The strength or the weakness will become apparent. Then 
the manager can proceed to rearrange the parts so as to eliminate the 
points of weakness and further strengthen the points that are already 
strong, and put them back together again-synthesize. 

To analyze and synthesize is not always easy, but here, as in most 
things, practice increases one's ability. In my own case, it was interesting 
for me to watch myself develop to the point where I could tackle prob- 
lems that I could not possibly have handled a few years earlier. Unless 
a manager tries constantly, he cannot develop this capacity. In the 
business of taking things apart, hardly a week passes that something does 
not come up that seems just about insoluble, like a greased pole that 
cannot possibly be climbed. But if the manager will keep at it long 
enough-keep the problem constantly before him-gradually he will 
be able to break it down to its component parts, which can then be 
grasped and rearranged in a new pattern that provides the solution so 
long sought. It is the task of the manager to apply his thinking ability 
and his developed skill in analysis and synthesis to the two distinct phases 
of management— planning and control. 

Importance of Planning 

Planning is actually the formation of policies. It includes three cardinal 
points: first, determining the objectives to be reached: second, out- 
lining the procedure to attain these goals; and third, assigning the 
responsibility for carrying out the various steps involved in implementing 
the adopted program. 

The famous French general of World ^Var I, Marshal Foch, is reputed 
to have said, "In whatever situation you find yourself, determine first 
what is your objective." That question, it seems to me, should be asked 
in facing any business problem. Whether it be the opening of a new 
sales territory, the making of a new product, or whatever the project, 
management should ask itself, "What are we really after here? Is it 
something temporary? Will it have a permanent advantage for the busi- 
ness? Is the probable result worth the risk of the investment required?" 
These questions must be answered. Only when the objective can be seen 
clearly and only when it is convincingly established that the attainment 
is worth the effort involved should the decision be made to go ahead. 
The next question is how to get there. In this second phase of 
planning, each step should be carefully laid out in succession, with a 



THE TASK OF MANAGING 141 

definite date set for the completion of each of the various stages of the 
program. 

Assigning the responsibility for carrying out the various steps in the 
procedure represents the third element of effective planning. Many 
excellent plans have failed because that third step was not carried out 
and the final outcome resulted in nothing more than what we com- 
monly call "passing the buck." Good management must not only define 
tasks clearly, but also imbue all members of the organization with an 
over-all sense of stewardship for the company's best interest. Then, if there 
is any question as to who is to handle a certain job, the persons involved 
will be interested enough to discuss it between themselves or with their 
supervisors in order to define responsibilities still further, but under 
no circumstances will they walk away and do nothing about it. 

Assigned responsibility must carry with it commensurate authority 
for action. In this connection, the manager, in working with his im- 
mediate associates, will find the three categories of authority and 
responsibility mentioned earlier of genuine help. c 

Control in Management 

The second element in management is control. It includes two factors, 
organization structure and supervision. By organization structure is 
meant the method used by a manager to enable people to work more 
productively in groups than alone. In effective group action, each mem- 
ber has his particular task assigned to him, and the combined perform- 
ance of all members produces the over-all accomplishment. Good 
managers analyze the whole job from every angle, and then break it 
down into separate components (here the skill of analysis comes into 
play), to each of which they assign a member of the group. 

Developing a Sound Organization Structure. In the development of a 
clear-cut, effective organization, seven cardinal principles must be 
observed. They are, first, delegate responsibility as widely as possible; 
second, confer appropriate authority on those to whom the responsibility 
is delegated; third, define responsibility and authority for each of the 
positions involved; fourth, group the activities which one individual 
is to supervise in a way that is most natural and logical; fifth, make 
certain that adequate supervision is arranged for all essential activities; 
sixth, limit the number of persons reporting directly to one manager, 
with the ideal at about seven; and finally, seventh, coordinate all related 
activities. 

Effective Direction of Emplotjees. Supervision— the second element in 
control— is the effective direction of employees along organizational lines. 
Through supervision we can see to it that the organization structure 
really functions. But in making the organization machine work properly, 



,^2 THE MANAGING FUNCTION 

we come to the question of the human being. The success of any piece 
of work rests, in the last analysis, on some individual. So it is vital to 
have the right kind of men filling the key roles in the organization 
structure. We have already thoroughly explored this concept. 

Someone said years ago that a man without vision requires super^•ision. 
Thus the problem of management is to develop men of vision so that 
the amount of supervision they need on their jobs is reduced to a 

minimum. 

From an operational standpoint, one problem frequently confronting 
the manager is that of getting action toward the goal or goals he has 
established when certain elements within the organization are not 
entirely sympathetic. The manager, of course, can by virtue of his 
authority demand that the entire organization move in the direction he 
desires-and promptly. Under such circumstances, it is likely Jhat some 
movement will occur, but it will not usually be prompt movement. The 
forcing of objectives on an organization unwilling to accept them is not 
an easy task. Friction and resentment are generated, and, of even 
greater importance, key managers who are extremely opposed to the 
ideas can effectively sabotage the program. And yet it is frequentlv the 
responsibility of the top manager to secure action toward the proper 
goal even in the face of such redoubtable opposition. 

Overcoming Resistance and Opposition. How can resistance and op- 
position be overcome? There is no set formula; each situation must be 
dealt with on its own terms. However, application of the principle of 
common counsel, which we have already described, can be of immeasur- 
able help. It is possible, through the discussion of the plan in detail and 
the enlisting of ideas of subordinates, to generate a measure of support. 
While this is a somewhat tedious task, it nevertheless usuallv yields 
faster and more lasting results than the method of the direct application 

of force. 

Another practical approach is to break down the major objective into 
smaller sub-objectives and introduce them gradually to the organization, 
a step at a time. This is somewhat akin to the concept of cra.ding before 
walking. If it is possible for the manager to get the organization moving 
toward the objective at a rate of, say, lo miles an hour, that is better 
than standing still. After the organization has been moving along at 
this speed for some time, he can step up the pace to 15 miles an hour 
by introducing the next sub-objective. Again, after the organization has 
become accustomed to this speed, he can introduce the next sub-objective, 
the next and the next, stepping up the speed each time. By gradual 
stages in this manner, he can, with far less friction, orient the organiza- 
tion and get it moving in the right direction at the proper speed. 
Some ''Driving" in "Leading:' As we have noted, there is far more 



THE TASK OF MANAGING 143 

leading than driving in modern business. And yet, it is impossible for a 
manager to do no driving at all in the strictest sense of the word. He 
must set objectives, and he must see clearly how these objectives are to 
be achieved. The organization will not move of its own volition toward 
these objectives. The essence of true leadership is in finding the proper 
means to get the organization moving in the right direction at the right 
rate of speed. Perhaps the difference between driving and leading 
today is that the manager must "drive" without the organization's being 
aware of it. 

Importance of Research Attitude 

In another area of operations, it is a task of managing to maintain 
a sympathetic attitude toward research. It hardly seems necessary to offer 
this suggestion, since research has so pervaded all aspects of business. And 
yet there are still many managers who regard the various phases of 
research— marketing research, public-attitude research, and similar matters 
—simply as a slow means of confirming their own judgments. There is a 
somewhat more receptive attitude with respect to product research since 
most business managers have come to realize that the life cycle of products 
is becoming increasingly shorter in duration. The tempo of technology 
and product development is being stepped up rapidly in geometric 
proportions. There is not the slightest doubt but that research is a most 
important factor in determining the future of any business. 

In order to remain profitable, any business must be feeding into it 
constantly a certain number of specialty products on which a wider 
margin of profit can be secured to replace the profits that are lost as 
earlier specialties turn into staples. This is happening constantly as 
individual products go through their life cycle from initial growth to 
maturity, to saturation of the market, and eventually to decline and 
death. As we have already mentioned, this cycle is of exceedingly shorter 
duration today than it was twenty or thirty years ago. 

However, the idea of maintaining the research point of view goes far 
beyond the use of formal research methods and product research. It is a 
managerial point of view. The manager must be constantly trying to 
develop new ideas and to make new adaptations of old ideas. 

This point of view goes hand in hand with the concept of creative 
thinking that we have already discussed. Business managers who enjoy 
reputations as innovators for introducing highly creative business ideas 
insist that they really never came up with a single new idea. All they 
did consisted merely in taking an idea here, one over there, another out 
of a book, and still another out of a casual conversation and somehow or 
other getting two ideas to make a junction. In this process, they got a 
new thought, like two currents springing together from the poles of an 



144 THE MANAGING FUNCTION 

arc li^ht. In developing the selling arrangement for wholesale distribution 
of Armstrong flooring products-which has been one of the greatest 
sources of strength in this business-everything we did followed from 
taking ideas from the fellows who sold direct and finding ways and 
means of making them effective for wholesale distribution. It was not 
primarily a matter of new ideas. The concepts were new in one sense, 
but they were all old ideas used in a new way. It is a task of the manager 
to develop this research point of view through conscious practice bv 
constantly asking himself such questions as "Couldn't I make some 
change here that would be advantageous?" "Isn't there a better way of 
doing this?" "Do we really need this device or this service?" "Couldnt 
this process be eliminated and these other two combined?" 

Projit Philosophy 

There is one operational area closely related to the development of 
new specialty products that poses a particular problem in managerial 
judgment. It has to do with profits. We are not referring here to the 
over-all earnings of the enterprise, for the maintenance of adequate 
earnings on investment is such a prime responsibility of management 
and is so well recognized that it need not be discussed at length. Instead, 
we are considering profit margins of individual products. AVhen a new 
specialty product is developed, it is quite proper to set a price that will 
bring a wide margin of profit in order to recover development costs. 
There is, however, a delicate sense of timing involved in knowing how 
long to maintain the wide margin and in knowing when to reduce it. 
In a competitive economy, any successful enterprise will attract competi- 
tion, and if the manager attempts to maintain a wide margin of profit 
for too long a period of time, he will succeed merely in setting com- 
petitors up in business and giving them a flying start. So, as a matter of 
practical fact, exorbitant earnings do not serve the long-range best 
interests of an individual business. Instead, as greater profit margins are 
created through improved efficiency in operation, it is prudent to pass 
on these savings to customers in the form of lower prices and to em- 
ployees through higher wages. One of the tasks of management is to 
recognize the interests of these groups and serve them fairly. Equitable 
distribution of profits, however, must naturally be preceded by the 
fundamental job of earning them. Without profits no business can 
continue to exist. Hence a delicate sense of touch with respect to pricing 
specialty products, coupled with an innate sense of timing, will in the 
long run help ensure the over-all profitability of the enterprise. 

Another operational task of managing involves a basic decision on 
the type of goods manufactured and the merchandising policies to be 
followed. Essentially there are two basic policies for a manufacturer. 



THE TASK OF MANAGING 145 

One is to make the greatest possible quantity of goods that can be turned 
out cheaply and efficiently and sell them on a basis of price to that 
element in the population with whom price is always the dominant 
factor. The second policy— which is equally legitimate— is to turn out the 
best sort of merchandise that can be produced economically and efficiently 
and sell it on its merits to that element in the population with whom, 
while price is important, other elements— quality, pattern, and speed 
of turnover— are also given due consideration. No organization can be 
effective if it tries to ride both of these policy horses. The task of manag- 
ing is to adhere firmly to one policy or the other and to build an organiza- 
tion that will be effective along whichever course is selected. 

Preserving Perspective ' 

From an operational standpoint, one of the most difficult problems 
that a manager faces is in preserving his perspective. So many things 
cross his desk that he cannot dwell long on any one question. Problem 
upon problem is brought to him for final resolution. And they are 
not simple problems, for any point in dispute brought to top manage- 
ment for decision has at least two, and sometimes more, well-defined 
and clearly documented points of view. The top manager as he listens 
to the arguments pro and con frequently discovers that he would have 
no difficulty in rationalizing a decision in favor of any of those presented. 
Thus the task for him is to decide which is the right one— which is the 
one that will advance the objectives of the business— which is the one 
that will attain success. These day-to-day problems of the manager are 
not idly dismissed. Sometimes they haunt his sleeping hours as well as 
his waking hours. In such situations, one of the manager's greatest 
difficulties is to preserve his perspective. If he holds a piece of paper up 
in front of his eyes, he can shut out the whole world, but if he holds 
the paper away from him, he can see the world behind it. It is possible 
for him to get into a mental lather over a problem that looms large 
and comes steadily closer and closer to him until it tends to shut out his 
vision entirely. 

For this reason it is vitally important for every manager, whether he 
wants to or not, to take a vacation periodically. He should get away 
from those day-to-day problems that haunt him. When he gets to a 
point where perspective diminishes and the problem gets closer and closer 
until it leads to outward irritation, or at least inward irritation, then 
his perspective— his sense of judgment— becomes warped. He should put 
the problem aside and get away from it. 

When he does get away for a few weeks, he will discover that the first 
ten days or so will find his managerial tasks still pretty much present in 
his imagination, but after about ten days— as the Metropolitan stage 



J 45 THE MANAGING FUNCTION 

looks when the opera glasses are reversed-his problems will begin to 
fall back into proper proportions. As he sees them against the proscenium 
arch of the mountains or the sea, the problems get into proper per- 
spective. Then when he returns to the desk, his ability to use and 
exercise his judgment is vastly increased. 

There is no more earnest or sincere suggestion to be given to the 
young manager than this: When you get to thinking of some of the 
injustices you feel you are subjected to, and when they seem to come 
right up on you like the locomotive comes up in the movies until it 
appears as though it is going to run right over you, then turn to some- 
thing else for a few minutes or a day or a week. Leave your desk and 
talk to your supervisor or someone else in your department; get a fresh 
point of view so that your perspective can be restored. As important 
as this is for the manager himself, it is doubly so for him to recognize 
this in subordinates. When a man comes to his supervisor and savs he 
cannot get away, that is proof positive that he has lost his perspective 
and he should go, by all means. It is the task of the manager to keep 
his eye on his men to detect when they are reaching this point and to 
see to it that they do get away in order to regain perspective. 

RESPONSIBILITIES BEYOND THE BUSINESS 

Thus far we have discussed building an organization, training it, and 
some general operating principles to assure movement of the organiza- 
tion toward well-defined objectives. All these apply inwardly to the 
operation of the enterprise, and most of them are as applicable to 
institutions as they are to business organizations. But the responsibilitv 
of the modern business manager goes well beyond his own organization. 
One of the most important tasks of managing today is to see the enterprise 
as a part of the total social and economic fabric of the nation. 

To do this, the manager must have a sense of social responsibilitv. a 
thorough knowledge of the interplay of all elements in the economv, 
and a firm foundation of faith in the fundamental principles upon ^diich 
the American Republic was founded. It is not enough for him to be 
intimately acquainted only with the details of his o^ni enterprise. He 
must also understand the principles on which the American svstem rests. 
Self-government means government by ourselves. A free government will 
not run itself; to be successful it requires the time and attention of everv 
one of its citizens. No church, no club, no lodge, no business can prosper 
unless some individual is willing to devote himself to its interests. This is 
equally true of popular self-government. 

Unless business managers as individual citizens are willing to give then- 
personal time and effort to help carry on the government, it soon degen- 



THE TASK OF MANAGING 147 

erates in quality and efficiency and will eventually fall into the hands of 
power-seeking individuals who will destroy our freedom completely. 
Eternal vigilance on the part of the individual citizen is, quite literally, 
the price of liberty. 

All too many business managers, though they acknowledge the truth 
of this proposition, say, "Well, what can I do about it? After all, I am 
personally quite unimportant." Lord Bryce said that in this attitude 
lies one of the real weaknesses of a republic like ours— "the fatalism of 
the multitude, a sense of the insignificance of personal effort." The 
business manager needs to keep constantly before him the statement of 
Herbert Spencer: "What I need to remember is how infinitesimal is the 
importance of anything I can do, but how infinitely important it is 
that I should do it." 

As business managers, we have a fundamental task— a responsibility— 
to the nation and to our own businesses not only to assume our individual 
duty in standing for sound American principles, fearlessly enunciating 
them in our daily lives, but also to seek constantly to implant them in the 
minds and hearts of the rising generation. 

Preserving a Free Society 

If a free society is to be preserved, seven elements of personal character 
must be dominant in the citizenry of the nation: self-reliance, individual 
initiative, personal responsibility, thrift, pride of citizenship, courage, and 
religious faith. In recent years, spurious substitutes have been palmed 
off on the American people for these basic virtues of free men: govern- 
ment aid for self-reliance; collectivism for individual initiative; a partly 
socialized economy for personal responsibility; public subsidies for thrift; 
subservience for pride of citizenship; paternalism for courage; and mate- 
rialism for religious faith. The business manager who assumes that he has 
no responsibility in these areas, who assumes that this is the natural 
course of human events and nothing he can do will alter it, is totally blind 
to the most important task of managing. 

To be worthy American citizens, we managers must be on guard con- 
stantly to develop and exercise the seven fundamental elements of per- 
sonal character on which the maintenance of freedom in America de- 
pends. History shows that when men attempt to relegate their personal 
responsibilities to other men calling themselves government, these other 
men eventually rear a powerful monster who turns and devours liberty. 
The responsibility here is strictly personal. Every business manager as an 
individual must assume the task. He must ever remember that no chamber 
of commerce ever composed a great symphony; no labor union ever 
painted a great picture; no church ever wrote a great sermon; no man- 
agement association ever composed a great poem; no government com- 



I^g THE MANAGING FUNCTION 

mission ever put together a Gettysburg Address. It is the individual, in 
the last analysis, who determines the course of human affairs. 

So when the last clear call comes for the business manager, may it be 
said of him and all other managers, as it was said so eloquently of Pope 
Leo XIII at the time of his death: "Such men fight the campaigns of the 
future, while all the world around them is asleep. But w^hen the time 
comes,' though they themselves be gone, the roads they planned are broad 
and straight for the march of other feet ... the spirit they called up 
still lives to lead. And they themselves, wherever they may be . . . have 
a continuing share in the victories that humanize mankind." 



Gray L. Carpenter 

PRESIDENT 

GRAY L. CARPENTER & ASSOCIATES 

POCONO MANOR, PENNSYLVANIA 




As head of his own service organization, Gray L. Carpenter has worked 
closely with the chief executives of a number of United States and 
Canadian companies. He has served as a special consultant on a variety 
of management problems ranging from organization, personnel, and 
training to policy-level public relations and sales promotion. 

Among Mr. Carpenter's clients have been such firms as Knox Cor- 
poration, Anglo-Newfoundland Development Company, Limited, Dun- 
lop Tire and Rubber Corporation, Mississippi Products Corporation 
(Sears Roebuck and Company), Fred Meyer, Incorporated, and Rinek 
Cordage Company. He has also worked with several management 
associations, and particularly with the business leaders who guide 
them, including the National Association of Manufacturers, the Society 
for Advancement of Management, the MTM Association for Standards 
and Research, and the National Association of Industrial Advertisers. 

Mr. Carpenter has played a key role in planning and organizing 
many top management seminars and management development pro- 
grams. He has also helped to advertise and sell the programs and has 
frequently been a key lecturer as well. In this field he has served the 
University of Miami, the Bridgeport Engineering Institute, and sev- 
eral consulting firms and management associations. 

Gray Carpenter was born in Maryville, Missouri, in ic)i8, but grew 
up in Iowa. He attended Washington and Lee University in Lexington, 
Virginia, leaving after two years to do newspaper and radio writing 
for Knickerbocker Broadcasting Company. He then attended Harvard 
University and finished his schooling at the University of Hawaii 
during the war years. 

Enlisting in the Navy the day after Pearl Harbor, Mr. Carpenter 
was commissioned just in time to head the ip^2 Navy Relief Cam- 
paign in Florida. In that year Florida led the nation in contributions. 

Photo by Lawrence Studio, Stroudsburg, Pa. 



" ) 



14S 



After similar successes in a number of War Bond drives, he was 
assigned as aide to the commanding officer, USNAS, Daytona Beach, 
Florida. He was later sent to the Pacific, where his administrative 
talents were quickly put to use on the permanent staff of the Com- 
mander of Pacific Fleet Air Forces. Mr. Carpenter left the Xavy as a 
senior-grade lieutenant (permanent appointment) with a Xaval Com- 
mendation Ribbon and Pacific and American campaign ribbons. 

After the war, Mr. Carpenter went to work for Ruud Manufacturing 
Company in Pittsburgh, Pennsylvania, and became assistant vice-presi- 
dent-sales. He then joined Methods Engineering Council, management 
consultants, as director of advertising, sales promotion, and public 
relations activities. While with Methods Engineering Council, he 
helped to organize a series of management conferences. Out of the 
work done on these conferences came his first book, A Training 
Course in Effective Speaking, which was published by Funk and Wag- 
nails in ig^i- 

He formed Gray L. Carpenter t Associates in 1949 and maintains 
offices in New York City and at Pocono Manor, Pennsylvania. 

April, i960 



CHAPTER 6 

The President's Job 



A vast amount of information has been written about presidents of com- 
panies. Sincere management researchers have investigated their practices 
in depth. Others have held them up to ridicule. Still others have glamour- 
ized them in the novels of our times. 

Almost every conceivable type of survey has been conducted on com- 
pany presidents as a group. There have been serious surveys and facetious 
surveys. One of the latter purported to prove something by citmg favorite 
presidential foods, their over-all average hat size and shoe size and the 
colors which company presidents preferred. A well-kno.vn periodical even 
published this nonsense to give their readers "a composite view ot the 
average American company president." 

What this proves, of course, is that there is a great interest m presidents. 
It is fitting that this should be the case. After all, they are leaders. And m 
a tepid era when security rides high and self-reliance often seems on the 

150 



THE president's JOB j^j 

wane, those willing to make the sacrifice of assuming leadership are, at 
the least, a curiosity. 

Apparently, from a low at the time of the Great Depression, the cor- 
porate president has risen to new highs in every line of endeavor. Civic 
groups and church groups seek him out, perhaps with mixed motivations 
but certainly with energy. Governments ask his counsel and advice. And 
even the most militant of unions no longer try to depict him as an ogre. 
There are other reasons for this interest in presidents. Seventy-five mil- 
lion TV sets, as many or more radios, and every form of mass communi- 
cations daily extol a very narrow and material form of the American way, 
namely, that the hard-working and self-sacrificing husband and father 
who brings home the bacon to ''mom" and the kids, the upright and 
staunch breadwinner, is somehow a proper sort of hero. The idea is 
matriarchal in concept, but many people, especially women, have vague 
imaginings that the president of a firm is a kind of super-soap-opera 
leading man. The idea may be an unconscious one, but I have run into 
it countless times. 

Because a company president not only brings home more bacon but 
also makes it possible for others to do likewise, it is no wonder that he is 
a subject of fascination to the public at large, to the student who hopes 
to follow in his footsteps, and to just about everyone, including, of 
course, other company presidents. 

This is not said lightly. The great sweep of history and economics will 
show that it was always thus. The men at the top, the leaders of any 
society in any time, are the ones who have been vested with whatever the 
people have considered the most important attributes at any given time. 
Revival of the arts swept the imagination of the Renaissance. Money was 
the idol of the capitalistic era. In our time, the successful company presi- 
dent epitomizes our quest for material things, but with social conscious- 
ness; our enthusiasm for machine-age progress, but with a respect for our 
past; our preoccupation with the age of space, but with a pride in our 
"breadwinning" ways which have virtually licked the old battle for 
sufficient food, clothing, and shelter for all our people. 

And, as always, this civilization of today is still resplendent with the 
leadership of a few. The truth is that there just are not very many com- 
pany presidents. Even in the United States, where private enterprise has 
grown into fullest bloom, a company president belongs to a small minor- 
ity group. A few thousand people at most! 

Who Are the Presidents? 

Statistics are very misleading as to presidents. They vary from one 
chamber of commerce to another. It all depends upon whether you 
classify an owner of a business in the same light as you might a president 



THE MANAGING FUNCTION 
152 , 

Of a company. If we include typical owners, then we include a much, 
much larL group who "keep store." Is this our purpose.- I think not 
Txht is not meanfto disparage in any way the thousands of storekeep^ 
Iho "do" rather than "manage," because these small ^'-- ^^^ ;^- 
Tf erowine into large corporations, and sometimes very quickly E^ en it 
theydo nft grow, they are'still a part of the strong backbone o .^merica^ 
But mos" could not e'xist without the hard core of successful larger and 

™;7u':;t:r:toTall about the president. )ob, we should have .me 
ground rules for recognizing him. The conapany P-^dent we sh 1 d us 
fs the "president who is actively engaged m managing the actnities 

''If we accept this concept, we can say that there are some.vhat more or 
les stLnTs 000 men and women in this country who fit into the category 
f we add t^this others who are doing top-level management or executive 
wo"k those working toward doing it, and those planning activelv to do u 
Ten weTre talking about approximately an additional 350.000 at the 

""Tt'challenges the imagination to realize that upon a small group of 
les than a half million people depends much of the economic future of 
"n soon' to be start'Jng'upon its third hundred ""Uon populatioi. 
Ld the effect of the American businessman on the rest of the ^Nestein 
world? That story is well known. 

It is little wonder that there is an abiding curiosity about the e te,^ 
or idem upon whose success so much depends. Perhaps it is rele^an 
Tknow wha't they do in their personal lives. Perhaps we should s op 
a rnoTnt before becoming amused at people who ask questions about the 
izToTthe presidential hat, the size of his shoes, and his fav-- o^^^^^ 
The truth if, of course, that the hat size is average, as compared . ith any 
, „ k the shoe size and presidents, too, along with moie 

ZrrmOri'orotVer^AtTriLn;, nam'e steak, preferablv rare, as their 

'T:fbefot even trying to define and describe the president s job, we 

Tncerns them almost as much as it does the chief executive himself. 

Presidents and Executives 

The big difficulty encountered when we try to ^-«- . J^ F-;^^;;' ^ 
iob is the varying size of the companies of our 75.000 presidents. Often a 
lice president's work in a large company will be far more important aiK 
r ouhe more responsibility and decision making than will the job of the 
chief xTcutive of many of our smaller firms. As a result, there is a 



THE president's JOB jkq 

tendency to dismiss the smaller firms. We hear so much about the 500 
largest firms, the 50 biggest executives, and so on. This can be a trap for 
a good many people who would write about the profession of manage- 
ment. Countless surveys show that size alone is not necessarily a criterion 
for much of anything. The American Management Association found 
that in profits and salaries there were few patterns. Some of our most 
distinguished companies often were long on volume and short on profit. 
And they found that many a smaller company head received a princely 
remuneration for his efforts, while some of our biggest company heads 
had to be satisfied with much less. 

How do we pin down exactly whom we are discussing? We must begin 
by defining an executive and then decide whether or not he fits our 
concept of a president. The definition that I prefer was developed by 
Leland Doan, president of Dow Chemical, and appears in The Executive 
Life by the editors of Fortune.^ 

"An 'executive' is a relatively high-level member of the management 
family whose work is largely in the area of decision-making and policy 
formulation. His capacity is such that his judgment, perspective, and skill 
m properly delegating responsibility will weigh heavily in the long-term 
success or failure of the business." 

It seems to me that this definition can be used to describe the work 
of presidents of companies of every size as well as executives of larger 
companies whose management activities are of comparable nature to 
those of smaller company heads. 

Although the definition is most general, it gives us a ground rule for 
discussion. It should be fairly easy, through surveys, investigations, and 
observations, to take a close look at United States company presidents 
learn something of their motivations, what they do with their time their 
similarities and differences, and then, perhaps, draw some conclusions 
Remember, our executive is a recognized leader exercising a leadership 
which involves our economic well-being. This may, in the long run, prove 
just as important as our military well-being, and possibly even more so 
Time alone will tell. 

CHARACTERISTICS OF PRESIDENTS 

Having worked closely with a considerable number of presidents of 
both large companies and small over the past eighteen years as a presi- 
dential assistant, working in training conferences with presidents assist- 
mg them in organization, and talking with them about their' many 
problems, I have become more interested in the motivations which led 

^Pen-in Stryker, "Who Are the Executives?" in The Executive Life, the Editors of 
Fortune, Doubleday & Company, Inc., New York, 1956, p. 19. 



, p.^ THE MANAGING FUNCTION 

them to their positions than anything else about presidents or their jobs. 
It is often a thankless job and one that, in many cases, demands back- 
breaking effort. How much easier it is to fill that comfortable middle- 
management, semiexecutive slot, of which almost every companv has 
great need. The company president or true executive has: 

1 . Less time for his family 

2. Less time for recreation (and even the leisure hours are often spent 
with business acquaintances, rather than friends) 

3. A work week ranging from 60 to 80 hours, rather than the 40 to 50 

hours of most people 

4. A travel schedule which is approximately 10,000 times greater than 
the national average and ten times that of lesser executives 

These facts are borne out in innumerable surveys. ^Vhat possible ad- 
vantages and what inner drives force a man to put up with such a life.- 
The truth is that most presidents, according to AMA, think it is fun and 
would have it no other way. But I believe we can search for deeper 

motivations. J^ ■, if 

What are the qualities of leadership that are supposedlv the mark ot 
the successful president, or true top executive, which set him apart from 
others doing management work? Naturally, there is no one answer. 1 
believe however, that the man who worked up through the ranks, often 
in the face of cruel circumstances, from a laboring position; the bright 
youn^ executive who started well soon after graduation from the right 
school; and the man who inherited his mantle of authoritv through familv 
affiliation (after all, the latter could hire "management^ if he chose and 
become an absentee owner) do have some motivating characteristics m 

common. , x 1 .1 

I believe there are three such characteristics. They are (i) take control. 
(2) sense of self, and (3) sense of identity. Let us examine these m de- 
tail. 

Take Control 

I have seen a definite desire to take control (or take charge), on the part 
of most successful presidents, rather than to be controlled bv the forces of 
economics, time, and the activities surrounding them. This could be 
labeled drive or aggressiveness, but I believe it goes much deeper. It is 
more resistance to being at the mercy of the decisions of others, coupled 
with complete willingness to accept full responsibility for the success or 
failure of any project or the entire enterprise. And there are no patterns 
as to how he accomplishes his objectives; for example: 

1. I know a desk-pounding head of an appliance firm. He Iiterallv 
shouts for acceptance and gets it with resounding success. 

2. I know a stay-behind-his-closed-office-door president of a large service 



THE president's JOB J55 

organization who achieves remarkable success, quietly, by indirection, 
through others. 

3. I know a pat-on-the-back oil-company president who uses his charm 
to infuse great team spirit into his executives. And he promptly gets 
everyone to do exactly what he wants done in the exact way he wants it 
done— most profitably! 

Sense of Self 

I believe there is a sense of self in all men who are successful presidents 
and in those who will become successful presidents. It is not too unlike 
the inner forces that make men successful artists, musicians, poets, or even 
actors. Although self-expression is part of what I call sense of self, it is not 
all of it. It also takes something of the ego and, far more, a sense of 
having a contribution to make. I would define this sense of self as "an 
ego which expresses itself by making a contribution, or the giving of its 
talents." Sense of self is the opposite of selfishness. It is not money- 
motivated. Presidential management requires some ego; it is one of the 
most articulate forms of self-expression; and there must be the feeling 
with all this of making a contribution. The following men are examples. 

1. The foregoing may sound frothy if we consider a crusty, recalcitrant, 
hard-bitten president I know who always handles his own union nego- 
tiations. He loves to win. He is articulate to the point of being known as 
the "bald legal-eagle" by union leaders and their attorneys. His own per- 
sonal contribution to America is to lick inflation by giving no raises 
except for a commensurate production increase. It is a crusade for him. 
And it is also a sense of self. 

2. A chairman of a large retail chain, who began his rise to success 
by selling coffee door to door, confesses that his principal reason for start- 
ing his chain (even today, they will beat anyone's price) was to help people 
during the Great Depression. This man had known privation in early 
life. His means of self-expression, his contribution, was to help others. 
And the retail chain still bears his name in bright lights. 

3. A management consultant with whom I have worked once originated 
a new technique which would save industry uncharted millions if ac- 
cepted. On the surface, at least, it would have been much more profitable 
for him to keep the technique captive or secret and sell it company by 
company. Instead, he gave it away even to competitors, and then formed 
an association to control its application and use. It was his way of express- 
ing himself, making a contribution, and letting the widest possible audi- 
ence know what he had done. 

Lest I give the impression that management is a form of idealistic pap, 
it might be well to insert right here that in all the above cases the profits 
were far greater, as it turned out, than if other courses of action had been 



THE MANAGING FUNCTION 

15d 

followed But is this not always true? Henry Ford once said something to 
the effect that if managers do all they possibly can to give the customer 
the best possible thing they can, profits can't help falling mto their laps. 
This is a truth, I feel, that too many people miss. 

As further examples, I would like to point to this same sense of self as 
evidenced in the world of music. Why did Beethoven keep on .vriting 
music when he could no longer hear it? For money? He did not need it at 
that stage of his life. Franz Lizst was born a rich man and gave his music 
away; still profits flowed in for his appearances. And the dymg Schubert 
with no thought other than self-expression, contribution, and ego did 
his best to complete the "Unfinished Symphony" and became almost 
heroic in his failure. Truly, this sense of self bears further study by the 
student of management. 

Sense of Identity 

A "sense of identity" covers a number of things, including responsibilitv, 
but also the feeling that you belong to something, that you are a pait 
of what is happening to it, and that it is part of you; this is about as close 
as I can come to defining a sense of identity. The "it," of course, is the 
company. At the extreme range, it is almost a feeling that you and the 
company are one and that you are creating jointly something of lasting 
value. It is not quite dedication, but it borders on it. Now I do not mean 
that all presidents are, or even should be, zealots. But a tinge of this 
enters into the thinking of the great managers. It the sense of identitv 
is there, all else follows: responsibility, integrity, loyalty, steadfastness. 
Why> In a sense of identity there is love, too. Love for a thing called a 
company? I have seen it, and so has every good manager. A man may have 
many loves: for a woman, for his children, for the sea, for the plain, for 
the desert, for animals-even for the fine grain-fed cattle which he has 
laboriously raised and yet knows he must eat. And have you ever heard a 
farmer wax poetic over his cornfield? He is not boasting. It is because it 
is his, and the sense of identity is there. Examples are easy to find: 

1. Why does a man who knows that his policies no longer quite work 
still resist retirement? A sense of identity. 

2 Why does the president insist on putting in longer working hours. 
And whether necessary or not, in general, he does insist on it. 

, Why do approximately 98 per cent of all presidents interviewed bv 
AMA in one of their surveys say that they do not believe that thev are 
working too hard, and then admit that everyone else says that they are, 
including their doctors? 

Actually, this sense of identity is present in everyone to some extent. 
We hear so often of the man who damns his company to his associates 



THE president's JOB ]57 

within the company, but who points with pride to where he works when 
talking to outsiders. So pride too is part of the sense of identity. But in 
successful presidents, it goes further and means so much more than this. 
A few days before his death, one of America's best-known management 
leaders, who was also board chairman of his company, summed up this 
sense of identity quite eloquently when he said: "Gentlemen, I can sit 
in the board chairman's seat quite comfortably. I saw this company 
first as an apprentice, felt with the years its tremendous growth, and now 
it will always be part of me." 

You will note that he did not, as the egotist might, say that he would 
always be part of the company, implying that he would go down in its 
history. No, the words are those of a humble man. Yet his reputation was 
that of a ruthless, hard-hitting reactionary. But his sense of identity was 
keen. 

Other Characteristics 

Perhaps there are other identifiable characteristics common to company 
presidents and top-level managers. One such characteristic may well be 
the ability to synthesize information.2 Synthesizing has to do with creative 
imagination. It is the piecing together of bits of information in order to 
arrive at a complete picture on which to base a decision. It is the opposite 
of analysis. It is a somewhat new concept. 

To me, synthesis is a combination of creativity and timing. It is also 
the most important presidential characteristic having to do with profit. 
Profits depend not only on day-to-day decision making, but on long-range 
decision making as well. Day-to-day synthesis might affect pricing, produc- 
tion, purchasing, and selling policies. Long-range synthesis might affect 
improvements in a product line, new products, acquisitions or mergers, 
the building of new facilities, and so on. Synthesis is undoubtedly related 
to the sense of identity which I have just discussed. 

Little has been said about profits in trying to describe the presidential 
motivating characteristics. Yet every top manager will insist that profit 
is the motivating factor of business itself. I agree. It is the motivating 
factor of business. But I doubt that it is the motivating factor of the 
president as an individual. He must show a profit, and\he bigger the 
better! His own share is pitifully little of it. How then can profit be 
the personal motivating factor? 

The truth, I beheve, is that because profits little affect the actual take- 
home pay of successful presidents, many presidents of companies may be 
much further along the way toward being professional managers than 
they actually realize. 
- See Chapter 9, Synthesizing Information, by T. R. Moore. 



, p,^ THE MANAGING FUNCTION 

Can These Characteristics Be Measured? 

As nearly as I can evaluate it, these elusive qualities of leadership have 
changed little through time. The ancient tribal chiefs who become kings 
had "take control," a "sense of self," and a "sense of identity," and many, 
no doubt, had a "sense of synthesis," too. The pioneers who hewed out 
the American wilderness, making organized states out of what were limit- 
less and uncharted forests, streams, lakes, and mountains, had the same 
motivations. And let us admit, unsavory as the word is when used with 
business, the buccaneers who plundered and plagued the nations of the 
world for 1,000 years had them too. 

Although I am a great believer and supporter of psychological testing, 
I do not believe these qualities can be measured satisfactorily. I do not 
say that the characteristic of take control, for instance, cannot be dis- 
covered in certain individuals by testing. It can. But I have found that 
tests will not give us a clue as to whether an individual will actuallv 
take control, regardless of his basic tendencies. Take control, sense of 
self, and sense of identity confound even our most reliable intelligence 
test's Let us face it, there are a goodly number of highly successful presi- 
dents whose most notable characteristic is that of deep, unshakable ig- 
norance. But they move from take control right through to brilliant 
synthesis without batting an eyelash! 

There is no doubt, in my opinion, that psychological testing improves 
personnel selection and a behavior predictability batting average from a 
50-50 guess to at least a 70-30 ratio. 

But we are talking about successful presidents and top managers. It we 
look for profiles or patterns, we are just kidding ourselves. Presidents do 
not fit molds. Rather, they defy them. 

Perhaps, however, if we move from discussion to action, we can under- 
stand better how these presidential ingredients of leadership work in a 
practical sense. 

GENERAL OBSERVATIONS ON PRESIDENTS 

In their day-to-day work, we can find similarities and differences in 
presidents. Also, we can find certain general truisms which should be 
commented upon briefly. 

1 Presidents of larger companies are usually older than presidents ot 
smaller companies. In part this stems from the fact that the larger com- 
pany has a slower work-up-through policy than do the smaller organiza- 
tions Also, the larger companies are usually older and better established. 

2 More and more companies, large and small, are making retirement 
at sixty-five mandatory. Whether or not this is good is questionable. Some 



THE president's JOB J5g 

executives believe that it is a waste of talent, especially today when new 
advances in medicine have so greatly increased the life span. Again, the 
trend toward forced retirement is most apparent in the larger organiza- 
tions. Along this same line, however, there is another paralleling trend 
which makes use of retired executives by placing them on special boards 
to guide and counsel younger executives. 

3. One very significant difference between the presidents of larger 
companies and smaller ones is that the larger company head spends more 
time on external relations. I define external relations to mean public 
relations, community relations, stockholder relations, and so on. 

4. Presidents today, on the average, have a better formal education 
than did their fathers. This fact is so pronounced that we can also state 
that younger presidents today have more formal education than older 
ones. And we can be certain that the president of tomorrow will have 
more formal education than does the president of today. It is a trend of 
the times. It is noteworthy to mention that several surveys show that the 
vast majority of presidents feel that their schooling did little to prepare 
them for their role in business. This may be due to the fact that our 
schools give degrees in specialized areas such as engineering, finance, and 
science while there really is no one course which prepares a man to be 
president. But the presidents themselves blame their educational inade- 
quacies on the educational system. 

5. In interviewing forty presidents personally, thirty-two advised less 
specialization in education if a person would prepare himself to be a good 
company president. All forty suggested more liberal arts study. Their 
collective reasoning: that there will soon be thousands of nonmanagerial 
technicians in science, engineering, accounting, and so on, who can be 
hired for specialization, while a president should be a take-control type 
of individual who has a broad general education with a feel for both 
internal and external relations and a capacity for decision making. 

6. More company presidents rise to the top through the sales field than 
any other area. This is more pronounced in small organizations, but it is 
true in the bigger companies, too. One reason for this is that the sales 
area is one where personal performance is always noted more quickly. 
Another, less scientific reason is that the type of personality usually found 
in the sales area is more outgoing in nature, and so usually does a better 
job in day-to-day meetings and contacts with others, as well as in general 
human relations. 

7. Promotion from within is still the route most presidents of com- 
panies follow on their road to the presidency. But in a survey of one 
hundred presidents conducted by a well-known management periodical, 
fully 20 per cent of those queried feel that there is too much inbreeding 
in their companies. Collectively, their opinion is that if the president 



,^Q THE MANAGING FUNCTION 

must come from within, there must be fresh blood brought in at other 
management levels. An indication that many companies, particularly 
larger ones, question the promotion-from-within policy has evidenced 
itself since World War II. Many successful military men have been named 
company heads. Also, there are many other cases where lawyers, bankers, 
and other professional men have been brought in to serve as president. It 
seems to me that this is a definite indication that many of our companies 
are thinking in terms of professional management. I believe the trend 

will continue. 

8. Presidents, in general, work far longer hours than do lesser execu- 
tives, or their contemporaries in the professions, such as law or medicine. 
Surprising as this latter comparison may seem, it is the regularity of work 
both in the office and out which makes up the difference. Both la.wers 
and doctors may have longer single periods of activity, but this is made 
up for in vacations and days off. A 41/2-day work week is common in the 
professions, surprisingly enough. This refutes the TV and motion-picture 
concept of the heroic physician. It also points up a weakness m public- 
information policies of the businessman. 

9 The motivations of the president of a company are usuallv more 
dynamic than are the motivations of others working within the companv. 
This all comes back to the take-control, sense-of-self, and sense-of-identitv 
elements discussed earlier. 

10 Most presidents are copyists of other presidents. Although success- 
' ful presidents are directly responsible for many business and management 
innovations, they still rely on tried and proved concepts in much of then- 
work. This should not be interpreted as a weakness, but rather intel- 
ligence In the medical profession, doctors make free use of the results ot 
the research work done by others. In this sense, they are copvists. The 
businessman copies industrial-engineering procedures, management-de- 
velopment programs, packaging, labor-relations policies, and other man- 
agement techniques. In this sense, he is a copyist. Certainly, it is sound 

business practice. . 

11 While there is much discussion regarding professional manage- 
ment, only two out of forty personally interviewed presidents felt that 
they were in any sense professional managers. Many thought it would 
be a fine idea and that some day there would be such a thing. Seven, 
however, did not like the concept, thought it presumptuous, and m effect 
stated that being a successful businessman meant a lot more than being 
a "professional anything." 

12 The biggest single problem that all presidents, surveyed personally 
and checked through other surveys, have in common is that of handling 
people All admit it, and all are trying to do something about it, thev 

ay What they are trying to do to solve this problem defies uniformity. 



THE PRESIDENT S JOB 161 

It ranges from one president who is privately studying psychology from 
a psychiatrist to a president who has virtually abdicated his chief execu- 
tive's role by delegating everything except the signing of papers. And in 
between are hundreds of committee management solutions. One president 
even admits that 90 per cent of the meetings he calls are unnecessary but 
that he calls them for human-relations reasons. Still another, tired of the 
emphasis on human relations, admits that he has become a martinet and 
Hterally shoves his decisions down the throats of his subordinates. 

SURVEYS OF THE PRESIDENT'S JOB 

For some obscure reason, Americans seem to like surveys better than 
most pastimes. I suppose this fondness for surveys may in some way be 
connected with democracy, which lauds the average man. As a result, 
we seem to think that averages of all kinds must be good. It may be be- 
cause we like to use statistics as a crutch. Or perhaps our periodicals are 
at fault. It makes most writers' or editors' jobs easier if they can make 
statements based on a "scientific sampling" or "survey." There is nothing 
particularly wrong with surveys, except that most of them are somewhat 
misleading. Usually the extremes on both ends of a survey have little in 
common, such as a man making $1,000 per year and a man making 
$1,000,000 per year. And even if we adjust and average out a great mid- 
dle group, we are still far from the truth. 

I am, however, going to make use of a number of surveys in the pages 
which follow to try to give a better picture of presidents and top execu- 
tives. They are being used more to get an understanding of these men 
and their work than to try to draw a picture of an average president. 
Frankly, when it comes to presidents and other top executives, there are 
no averages. They are mostly unusual men and have little in common 
except those things which they copy from each other. Nonetheless, these 
surveys may be of help to the manager of tomorrow as well as to others 
who would do work in management research. Also, it may help to reassure 
some managers to compare their own activities with those of others. 

The surveys I have selected include a 1957 survey conducted by the 
American Management Association to determine what the "typical" presi- 
dent is like. This survey covers 335 presidents of companies with sales 
ranging from under $1 million annually up to sales over a billion. The 
average sales of the companies represented amounted to $65 million 
annually, so it actually represents larger companies rather than the small. 
Bear this in mind when reading the AMA statistics. Another survey used 
is from Fortune, portions of which were used in an article by Herryman 
Maurer, "Who Are the Executives?" This survey was compiled in 1952 
and represents findings on 900 executives from the 250 biggest listed 



,^2 THE MANAGING FUNCTION 

industrial companies based on sales, the 25 biggest railroads, and the 25 

biggest utilities. This will hereafter be referred to as the Fortune sur^•ey. 

I have also made use of a survey conducted by the Young Presidents' 

Organization in 1957, mainly to show comparisons. I will call it the 

YPO survey. • r 

And in 1955, Methods Engineering Council-^ (MEG) made a scientific 
sampling on the working habits of 50 successful presidents. This is par- 
ticularly interesting since it is the only available survey which shows the 
time spent by presidents in various functions of management. The com- 
pany sizes ranged from those having sales of $1 million annually to Si 1/9 

billion. . 1 T^ 1 • 

I have also made use of a survey made by the Industrial Relations 
Center of the University of Minnesota, which subdivides the typical work 
week of executives. 

In addition, I have questioned for backup material forty of the con- 
tributors to this Handbook. The comments on all portions of the surveys 
used are my own and may not necessarily reflect the views of those who 
made the surveys. 

Age 

The AMA states that its typical company president is "a foot-loose, 
energetic man around 50, earning an income that is pleasurablv high. 
MEG pegs its average age of presidents around 55, but states that he 
could be In his early forties, especially if the company is fairly small. This 
pretty much bears out Fortune's survey on executives, in general. For- 
tunes exact tabulation is given in Table 6-1. It should be noted that m 
this survey, as in the other surveys used, all the executives did not answer 
all of the questions. The response to all the surveys was, however, ex- 
tremely good; for the most part, over 90 per cent of those contacted 
supplied all the information requested. 

Table 6-1. The Executive Age 

(From Fortune) 

Number 
Age of Men 

40 and under 3 

40-50 100 

50-60 340 

60-70 325 

70-80 60 

80-90 5 

It can be seen that the great number fall in the 40 to 60 range, but there 
are a surprising number in the 60 to 70 age bracket. There was no break- 
3 A division of Maynard Research Council. 



THE president's JOB 



163 



down here, but I am inclined to believe that the majority are actually 
found in the 60 to 65 bracket. 

I purposely have not given the results of the YPO survey with regard 
to age because the requirements for membership in this organization 
limit the age of the member group. The YPO, however, states that the 
majority of its members head smaller companies, thus supporting the 
MEC survey, which points out that younger presidents usually head up 
smaller companies. 

Presidential Income 

The income before taxes of the presidents surveyed by AMA ranged 
from $13,500 to $400,000 a year, which is another one of those statistics 
that is impossible to reconcile. Its "average" company president's in- 
come is pegged at $68,000 per year, two-thirds of which is derived from 
salary. 

The YPO survey reports incomes of its presidents considerably lower. 
This is quite easy to understand, since most of the YPO members are in 
their thirties and head smaller organizations. YPO reports a median 
salary of $36,160. 

AMA states that a president's salary usually varies with the size of the 
company as measured by its annual sales, but it is quick to admit 
that this is not an exact relationship. AMA also reports that the president 
of one of its companies surveyed with a multi-billion-dollar sales volume 
earns considerably less than do a great number of other presidents heading 
companies one-tenth that size. 

AMA also says that it has found that presidential income and 
company size tend to increase with the age of the president, except that 
men of 60 and above usually preside over smaller companies, on the 
average, than do those aged 50 to 59. Nevertheless, it points out, the 
older men earn the higher incomes. The results of the AMA survey are 
shown in Table 6-2. 



Table 6-2. Income of Presidents 

(From AMA Suriiey) 



Age group 


Range 


Average 
(for those who replied) 


30-39 

40-49 

50-59 

60 and above 


1 15,000-$ 160,000 
13,500- 235,000 
15,000- 265,000 
16,000- 400,000 


$47,000 
61,200 
70,200 
83,300 


Over-all 


$13,500-$400,000 


$68,000 



.r^A THE MANAGING FUNCTION 

Now let US take a look at the YPO survey results regarding income 
which are shown in Table 6-3. Bear in mind that many of the YPO mem- 
bers head up smaller companies and that most of them are under 40. 

Table 6-3. YPO Members' Incomes 

{From 1957 YPO Survey) 

(Median income $36,160) 

Income Per Cent 

Under S15,000 3 

$15-20,000 13 

$20-25,000 12 

$25-30,000 18 

$30-50,000 31 

Over $50,000 22 

No answer 1 

There is a definite disagreement between both the AMA table and the 
YPO table and the table of Fortunes 900 executives from the largest 
of companies. As Fortune points out, these 900 earn "the hardly princelv 
compensation of $70,000 to $80,000 before taxes." Chief executive officers, 
they point out, do an average of $30,000 better. 

But the best part about Fortunes survey is its commentary: 

It is not only the tide of the job that counts, however, but also the habits of 
the particular industry. Utility and railroad men get low pav: men in steel, 
machinery and equipment, and retail sales get much more-but not the 102 men 
in the most populated big industry, food processing. Best off are executives m 
the miscellaneous group, made up mostly of companies in tobacco, drugs and 
cosmetics, liquor, movies, broadcasting, publishing. The median (i.e.. man-m-the- 
middle) figures [given in Table 6-4] exclude the effects of unusuallv high or 
low individual payments. 

Table 6-4. Median Compensation 

(From Fortune) 
(In thousands) 

All top executives 70 Metals ^^ 

Chief executive officer 100 Oil ^ 

Railroads 40 Textile ^^' 



Utilities 



40 Auto and auto parts 



PqqJ 60 Building materials 



90 



Pulp and paper 



10 



Machinery and equipment 100 



and metals Retail sales 



100 



Transportation equip, ana meiais i^v.lc.x. .c..^. ^^^ 

fabrication 70 Steel 

A^iycrsih ^0 Miscellaneous a a" 



Chemicals 



80 



The only commentary that I will add is that apparently compensation 
is somewhat less of a motivator to becoming a company president than 



THE president's JOB 155 

is generally supposed. Except in some of the rarer cases, it would seem 
that most presidents are certainly not overpaid when we think of the 
era of the capitalist. And of course, the leveling effect of our income tax 
structure cannot be overlooked. When we consider that the figures given 
are before taxes, it becomes obvious that most presidents are far from 
being, in any sense, rich men. 

Educational Backgrounds of Presidents 

As mentioned previously, there is more and more a trend toward presi- 
dents having a college degree than has been true in the past. It is getting 
to be a prerequisite, but as the following tables will show, there are stiH 
a goodly number of freewheeling, non-college graduates around; and 
there always will be those who work up through organizations, found 
their own companies, or inherit their companies who, for many reasons, 
do not get beyond the high school level. 

MEC found that 76 per cent of its presidents surveyed had college 
degrees, and all but 8 per cent had some college-level training. Of this 
group 22 per cent held master's degrees or the equivalent. 

AMA's survey (Table 6-5) shows that only 2 out of 41 younger presi- 
dents did not have at least some college. 

Table 6-5. Educational Background of Company Presidents 

{From AM A Survey) 





Below 










Age range 


high school 


High school 


Some 


College 


Graduate 




graduate 


graduate 


college 


graduate 


school 


30-39 




2 


11 


24 


4 


40-49 


2 


5 


10 


59 


24 


50-59 


5 


8 


17 


60 


30 


60-69 


6 


9 


20 


28 


7 


70-79 








2 


2 


Over-all 


13 


24 


58 


173 


67 





The figures from the AMA survey are also borne out by a YPO survey 
which shows that less than 10 per cent of its members have not at least 
attended college. The Fortune survey shows similar educational trends, 
although they do not record those who might not have at least graduated 
from high school (Table 6-6). 

Other findings, however, indicate that although college seems to be a 
badge which most presidents wear, many make little use of what they 
actually study. The AMA found that less than 5 per cent of its 335 
presidents actually rose to the presidency through the practice of the 
specialty in which they were educated. 



166 



THE MANAGING FUNCTION 



Almost all its 335 presidents surveyed actually feel that the principal 
benefits of their college training, or their educational training, were in 
the field of personal development rather than any form of technical train- 
ing. Of the AMA presidents surveyed 79 felt that their principal gain in 
education was learning how to think, analyze, and solve problems. Of 
these presidents 51 say that the main thing they learned in formal edu- 
cation was how to get along with others. Only 39 said that the specific 
subjects taken helped them in any way in their business. More than one- 
third of the AMA-surveyed people advised a straight liberal arts program 
as the best means of learning about management. Another sixth (which 

Table 6-6. Extent of Formal Education of 900 Executives 

(From Fortune) 
(In per cent) 



Postgraduate study 
College graduation 
College attendance 
High school 




takes us to over half of those surveyed) advised liberal arts plus work in 
a graduate school of business. Very few advised the practice of any fonn 
of engineering or science as a means of rising to the presidency of a com- 
pany. 

Almost all the presidents surveyed by AMA advised the broadest prep- 
aration available, the objective being to arouse interest in all types of 
knowledge and to develop the habits of effective thinking in every area.^ 
Of further interest is the listing of the actual majors which the presi- 
dents of the 335 companies reported on. The great majority (over half) 
majored in either economics or English. Here is the complete listing in 
order: 

1. Economics 

English 

Mathematics 

Engineering 

Psychology 

Accounting 

History 



2. 

3- 

4- 

5- 
6. 



Routes to the Presidency 

One of the things most important to the man who ^vould learn more 
about presidents is to find out what route they took to reach the presi- 



THE PRESIDENT S JOB 167 

dency. Before examining various surveys, it might be well to point out 
that there are still a large number of presidents who reach the top job 
through family inheritance and ownership. This is prevalent especially 
in medium-sized and smaller companies. 

AMA's survey shows that 14 per cent of its 335 company presidents 
became presidents because of family control. The others rose to the top 
through (1) marketing, (2) production, and (3) finance, in that order. 
One in five made the presidential grade through marketing; one in six 
came through the ranks in production activities; and one in eight through 
finance. In all other fields combined, including general management, per- 
sonnel, research, engineering, public relations, and law, were produced 
but 15 per cent of the 335 presidents surveyed. It is well to remember that 
the average age of these AMA presidents is around fifty, and that they 
represent mostly medium to larger companies. 

The YPO survey (Table 6-7), which represents smaller companies 
mostly, headed by men under forty, shows a different picture. While not 
typical, it is inserted for a definite purpose. 

Table 6-7. Routes to the Presidency as Reported by Members 
of the Young Presidents' Organization 

(From YPO Survey) 

Route Taken Per Cent 

Succeeded relatives, inherited 44 " \ 

Founded 27 ' 

Purchased control, merged 10 

Up from the ranks 11 

Hired directly to presidency 4 

Not quite half (44 per cent) as compared with AMA's 14 per cent in- 
herited their mantle of authority. Another 10 per cent, and probably 
some of the 27 per cent who founded their own companies, did have 
financial backing to get their start. This in no way implies criticism. If 
anything, it is to be commended. There are no hard and fast rules or 
routes to the presidency, but those who are in a hurry to get to be presi- 
dent might take note of these statistics. 

Even in MEC's survey, we find slightly over 20 per cent of the com- 
panies owned by the family of the president. And MEC's average presi- 
dential age is fifty-five. This all probably indicates that in spite of our 
preoccupation with "professional" management, there is still a consider- 
able blend of old-fashioned capitalism in our society. 

Fortune's survey gives us the best breakdown of what routes lead to 
the presidency in the larger companies. Table 6-8 lists the first job each 
man held in the company. Table 6-9 shows the job each held immediately 
before his present job. 



168 



THE MANAGING FUNCTION 



In spite of the addition of much science to the art of management over 
the past several decades, Fortune admits that "luck obviously plays a 
part in the rise of top executives ... and they [the executives] seem to 
manage to meet luck better than half-way." 



Job 



Founder 

Chief executive 
\'ice president . . 
Other executive 



Total executive 



Production 
Laborer . . 



Total production 



Administration 
Clerical 



Total 

administration 



Legal 

Financial . . 
Sales 

Engineering 



Table 6-8. First Job in the Company 

(From Fortune) 



No. of 

top 
execu- 
tives 



10 
64 
79 

98 



251 

66 
69 



135 

59 
121 



180 

43 
40 
79 
54 



Per cent of: 



Top 
execu- 
tives 



Chief 
execu- 
tive 
officers 



Retail 
sales 

execu- 
tives 



Top 
Railroad ^^^^^^. 

execu- ^.^.^5 

^'^'^^ under 50 



1.3 

8.2 

10.1 

12.5 



2.2 
18.2 
11.2 
11.2 



6.1 
6.1 

15.1 



8.1 
6.8 
8.1 



2.0 
10.2 
13.2 



32.1 

8.4 



17.2 



/ .0 

15.5 



42.8 

4.8 
10.0 



27.3 
6.1 



23.0 

6.8 
8.1 



10.2 

8.2 



23.0 

5.5 

5.1 

10.1 

6.9 



14.8 

5.9 
14.9 



6.1 

6.1 
45.5 



20.8 



3.3 
9.7 
3.3 



14.9 

6.8 
36.5 



18.4 

6.1 
13.3 



51.6 

6.1 
6.1 
3.0 



43.3 

10.8 
5.4 



19.4 

8.2 

3.1 

16.3 

Q.2 



Fortune states that "the types of work that lead tip to the top jobs have 
obvious variations by industry and a fe.v aberrations. (More than one- 
fourth of metals managers come up through finance.) There is nonetheless 
a consistent pattern: less law experience than generalh supposed, not 
much engineering or research, and among younger executl^■es. a lot of 

"some of the Fortune comments regarding the routes to the presidential 
chair are most helpful and revealing. Thev report that one man m nventv 
started in law, and while he found limited opportunity m most nidustrv. 
his chances were better in oil, utility, railroad, and food companies, .o 



THE president's JOB 169 

per cent of whose top managers joined their companies in a legal capacity. 
One man in twenty started in finance with equal opportunity to rise to 
the top in all industries. One in fourteen started in engineering, looked 
upon with special favor by the older utilities and the newer aircraft 
industries. One man in ten started in sales, upping his chances for the 
executive class by more than half in machinery or equipment and 
doubling his chances if he entered the food or building-materials fields. 

Table 6-9. The Job That Preceded the Top Job 

(From Fortune) ' - 





No. top 
execu- 
tives 


Per cent of: 


Job 


Top 
execu- 
tives 


Oil 
execu- 
tives 


Steel 
execu- 
tives 


Utihty 
execu- 
tives 


Top 
execu- 
tives 
under 50 


Law 

Sales 

Finance 

General 

management 


63 
192 
127 

123 

176 

84 

7 


8.2 
24.9 
16.5 

15.9 

22.8 

10.8 
0.9 


13.1 

23.0 

8.2 

8.2 

41.0 

4.9 
1.6 


3.0 
24.2 
12.1 

27.3 

24.0 

6.1 

3.0 


15.4 

4.6 

16.9 

33.8 

9.2 

20.0 


12.6 
34.7 
10.5 

12.6 


Production 

and operations 

Engineering and 

research 

Other 


18.9 

9.5 
1.1 



One in six went into production— best chance if he entered transportation 
equipment and metals fabricating. Nearly one in four men went into 
administrative work, often clerical. Here chances were best, Fortune re- 
ports, if the man went into machinery and equipment, 30 per cent of 
whose present top executives started in paper work. Among railroad 
executives 43 per cent began in paper work; and 52 per cent of retail sales 
executives began in paper work as opposed to only 3 per cent in direct 
selling. 

Oddly enough, most of the executives did not leave their starting areas 
of management in their rise. One in twelve went on in law, one in ten 
through engineering and research, one in six through general manage- 
ment, and one in six through finance. 

Meanwhile, they reveal, one executive in four was climbing the sales 
ladder, and one in four in production. They point out that the big in- 
crease in chances went to the salesmen. And they show that the trend 
today for younger men wishing to rise to the executive level is best found 
in the sales area. 



170 



THE MANAGING FUNCTION 



Table 6-10, from MEC's survey, gives a most detailed breakdown as to 
where its presidents came from on their way to the presidency. Note 
that 56 per cent of the presidents have as a background either straight 
sales (22 per cent) or sales and manufacturing combined (34 per cent). 
Again, this confirms the helpfulness of sales background for a man striv- 
ing for the top job. Notice also the difEerence between the numbers of 
presidents with straight sales backgrounds in companies where consumer 
goods are manufactured and where industrial goods are manufactured- 
35 per cent in consumer goods versus 12 per cent in industrial goods 
companies. As might be expected, in companies producing for consumers 
directly, sales are much more important than manufacturing, and we 
see, therefore, no presidents that have a straight manufacturing back- 
ground heading up consumer goods companies. 

Table 6-10. Work Background of Company Presidents 

{From MEC Swrvey) 
{In per cent) 







Manufac- 


Manufac- 


I 
Familv- 


Companies 




All 


turers of 


turers of 




founded bv 


Background 


companies 


consumer 
goods 


industrial 
goods 


companies 


president 


Straight sales . . . 


22 


35 


12 


30 


9 


Straight 
manufacturing . 


12 





25 


8 


28 


Some sales, some 

manufacturing . 

Engineering .... 


34 
8 


50 



29 

8 


54 



36 
9 


Financial, ac- 
counting 

Legal 


14 
10 


15 



13 
13 


8 



9 
9 



There are some significant differences between the last two cohimns. 
family-owned companies versus companies founded by the present presi- 
dents The founders of companies present a rather varied background, 
distributed mainly in manufacturing or in manufacturmg and sales, but 
also some in the other functions of management, while the presidents of 
family-owned companies lean heavily toward the sales background. 

In all the surveys used, there seem to be few discrepancies present 
except those which occur as a result of company size. There are fe^v 
exacting paths to follow to the presidency, but certainly chances are 
better in some areas than others. Also, it would seem to me that the 
importance of sales, being what it is, indicates the area a younger man 
should concentrate upon it he has talent in this area at all. 



THE PRESIDENT S JOB 



171 



The President's Work 

Little research has been done on what an executive actually does with 
his time, once he succeeds to the top job. Interesting beginnings have 
been made by the University of Minnesota and MEC. 

The University of Minnesota spent a great deal of time trying to find 
out exactly what the typical executive-manager does with his time (Figure 
6-1). They find that he works about j^hours a week at the office and 5 
hours away from the office at home, or a total work week of 47 hours. 
(In most surveys, presidential hours are usually calculated longer, but 
this is for all executives.) ■ : 




PLANNING 

SUPERVISING 

COORDINATING 

EVALUATING 

INVESTIGATING 

NEGOTIATING 

STAFFING 

REPRESENTING 



HOURS 
HOURS 
HOURS 
HOURS 
HOURS 
HOURS 
HOURS 
HOUR 



TOTAL 



47 HOURS 



Fig. 6-1. Division of the typical executive's work week. (From a study conducted by 
the Industrial Relations Center of the University of Minnesota.) 



This study shows that he devotes about 9 hours a week to planning 
and almost 12 hours to supervising the activities under his direction. 
Only a small part of the typical executive's job is spent directly on staffing 
and maintaining a work force or on representing the organization as such. 

The Presidenfs Participation in Various Management Activities 

MEC's survey on what part a president actually plays in different man- 
agement activities is one of the best, and also one of the few of its kind, 
I have seen. The tables that follow (6-11 to 6-17) are from the MEC 
survey. The commentary, however, is mine. 

Participation in Sales. There is little doubt that sales is the key function, 
based on both the time devoted to this activity and on the fact that so 
many presidents are chosen from the ranks of those who have had heavy 
sales experience. Because of the importance of this activity let us consider 
it first. Table 6-11 gives the degree of participation versus delegation in 
the sales activity. 



jyo THE MANAGING FUNCTION 

Table 6-11. Sales Participation versus Delegation 

(In per cent) 

Considers sales his primary job and actively engages in it: 

Average of all presidents 28 

Presidents of companies with sales of: 

$5 million or less ^^ '^ 

$6-10 million ^^ 

$1 1-50 million ^^ 

Over $50 million ^ 

Handles some favorite accounts personally 12 

Cultivates sales relations but handles no accounts 46 

Delegates rather completely ^^ 

It can be seen that very few presidents (14 per cent) do not participate 
rather actively in the sales activity. It is also interesting to note that so 
many presidents of companies with annual sales of Sio million or less 
consider sales to be their primary job. 

Participation in Manufacturing. Very few of the presidents surveyed by 
MEC take an active part in directing manufacturing operations, and 
large company heads seem to have divorced themselves almost completely 
from participation in this activity. In my opinion, most companies have 
come to the conclusion that low-cost manufacture, efficiency, and cost 
reduction are areas for specialists and technicians. Production, in recent 
"years, has become more and more scientific and less and less "art." Prob- 
ably the field of production is where most of the professionalism we 
have in management occurs. Of the Handbook authors I interviewed, 
only one said that he took an active part in directing the manufacturing 
activity. Table 6-12 gives the results of the MEC survey. 

Participation in Financial Management, The results of the survev on 
presidential participation in the area of finance (Table 6-13) shows just 
how much the business picture has changed since the era of the capitalist. 
Time was when finance was the main interest of most presidents. In the 
times of freewheeling capitalism, it was often about the only interest. 
Perhaps this is an indication of just how far management has progressed 
toward a professional concept. 

When a top manager states that he is in business to make a profit, it 
certainly bears out a contention made earlier that this was the object of 
the business but not a great motivation for the president himself: other- 
wise he would be watching finance much more closely. The Handbook 
authors I questioned support the MEC findings. Only two said they take 
part in the day-to-day workings of the finance activity. 

The Organization Function. MEC reports that 70 per cent of its presi- 
dents said that the hardest part of their job was handling people 



THE president's JOB 173 

Table 6-12. Participation versus Delegation in Manufacturing 

{In per cent) 

President takes active part in directing manufacting as main part of his 
job: 

Average of all presidents 6 

Presidents of companies with sales of: 

$5 million or less 14 

$6-10 million 8 

$11-50 million 

Over $50 million 

Actively reviews progress, but does not participate in daily problems: 

Average of all presidents 44 

Presidents of companies with sales of: 

$5 million or less 57 

$6-10 million 50 

$11-50 million 50 

Over $50 million 

Delegates direction of manufacturing rather completely: 

Average of all presidents 48 

Presidents of companies with sales of: 

$5 million or less 29 

$6-10 million 42 

$1 1-50 million 50 

Over $50 million 100 

(AM A reported nearly loo per cent on this), yet only lo per cent thor- 
oughly recognize organization as a function and how it fits together with 
people. This is borne out by the fact that 56 per cent stated that they 
take an active part in certain aspects of organization, such as management 
development. Judging from the results of the MEC survey (Table 6-14), 
larger companies require greater participation in the organization activity 
on the part of the president. 

Table 6-13. Participation in Financial Management 

{In per cent) ^' 

President takes active part in day-to-day workings of the ac- 
counting-financial function: 

Average of all presidents 8 

Presidents of companies with sales of: 

$5 million or less I41 

$6-10 million 8 

$1 1-50 million 6 

Over $50 million 

President delegates the function rather completely: 

Average of all presidents 92>^ 

Presidents of companies with sales of: 

$5 million or less 86 

$6-10 million 92 

$1 1-50 million 94 

Over $50 million 100 



174 THE MANAGING FUNCTION 

Table 6-14. Presidents and the Organization Function 

(In per cent) 

President thoroughly recognizes organization as separate function and carries on 
almost all aspects, such as charting company objectives, future organization plan- 
ning, development of men to fill organization, and training in selling organization 
changes: 

Average for all presidents ^^^ 

Presidents of companies with sales of: 

$5 million or less ' 

$6-10 million ^ 

$11-50 million ^l 

Over $50 million -^ 

President carries on a few aspects, such as management development: 

Average for all presidents ^" 

Presidents of companies with sales of: 

98 

$5 million or less -f 

$6-10 million ^^ 

$1 1-50 million 2? 

Over $50 million ; • • '^ 

President doesn't recognize this as function and uses various aspects only as occasion 

arises: 

Average for all presidents 

Presidents of companies with sales of: 

$5 million or less ^^ 

$6-10 million "^- 

$11-50 million ^^ 

Over $50 million 



It has been a personal experience that all companies are basically 
organized in the way the chief executive wants them to be organized. In 
organization charting, usually the president indicates to a subordinate 
what he wants done, the plan is put into effect, and then is promptly 
violated by the president himself. All of which indicates that there is 
some entrepreneurism still going on. There is a big trend afoot, however, 
for larger companies to create such positions as "vice president for ad- 
ministration," "vice president in charge of organization," and the like. 

The President and Public Relations. It has been a long time since J. P. 
Morgan said something to the effect that "We are going to do this, and 
the public be damned." Yet, this was the prevalent feeling of the early 
twentieth century. Today, most presidents realize that business exists only 
because of public acceptance. Thus the great interest in this area of 
management. 

Almost half of the presidents surveyed by MEC (Table 6-15) are active 
in this area, and this probably accounts for some of the long working 
hours that presidents have reported. "You are never completely free from 
public relations activities," comments one MEC president. Another: 
"Wherever I go, even if it is on personal vacation, I find occasions being 



THE president's JOB 175 

Table 6-15. How the President Participates in Public Relations Activities 

{In per cent) 

President is actively public-relations-minded and participates vigorously: 

Average for all presidents AA^ 

Presidents of companies with sales of: 

$5 million or less 63 

$6-10 million 17 

$11-50 million 56 

Over $50 million 38 

President strongly interested, encourages others, but doesn't participate very actively 
in public relations activities: 

Average for all presidents 46 

Presidents of companies with sales of: 

$5 million or less 14 

$6-10 milhon 67 

$11-50 million 38 

Over $50 million 62 

President not much concerned with public relations; neither participates nor 
especially encourages, handles matters as they arise: 

Average of all presidents 10 

Presidents of companies with sales of: 

$5 million or less 23 

$6-10 million 16 

$11-50 million W...^......... 6 

Over $50 million 

thrust on me such that whatever I say or whatever I do will have some 
effect on the company's reputation." 

Even company size does not enter in too much here, although it would 
appear that presidents of small companies do more aggressively put the 
company's name before the public. But even the heads of the largest of 
companies do not escape activities of this sort. Some larger company 
presidents even admit that public relations is their most important func- 
tion. 

If there is any question at all about this, we only need look at the 
fees being paid to public relations consultants: they are second only to 
advertising in gross billings for outside services, far ahead of legal serv- 
ices, management consultants, and others. 

Participation in Union Negotiations. The results of the MEC survey, as 
shown in Table 6-16, are somewhat misleading in this area. Although only 
12 per cent take an active part in negotiations, most presidents are kept 
informed of progress at all times and participate most actively behind 
the scene. Almost invariably they spend many hours weighing the pros 
and cons of settlement. 

Of the Handbook authors I interviewed, none participate directly in 
negotiations, but all said that they spend a great deal of time in discus- 
sions with their industrial relations men. Most presidents do not like to 



176 THE MANAGING FUNCTION 

Table 6-16. President's Part in Union Negotiations 

{In per cent) 

President takes part directly in negotiating with unions concern- 
ing contracts, wages, and the hke: 

Average 42 presidents of companies with unions 12 

Presidents of companies with sales of: 

$5 million or less 40 

$6-10 million 

$1 1-50 million 8 

Over $50 million 

President stays out of direct negotiations: 

Average 42 presidents of companies with unions 88 

Presidents of companies with sales of: 

$5 milhon or less 60 

$6-10 million 100 

$1 1-50 million 92 

Over $50 million 100 

sit in on meetings with unions, only because they do not wish to be called 
upon to make on-the-spot decisions. In this field, as in no other, 'com- 
mittee management" has become the order of the day. 

Participation in the Engineering Function. Table 6-17 shows that only 10 
per cent of the presidents interviewed by MEC take an active part in 
problems of design, research, and product development. This is another 
indication of how much the practice of management has changed since 
the turn of the century. At that time, it was not uncommon to find that 
the president of a company was primarily an inventor or a "tinkerer." 
There still are, of course, some company presidents that fit this charac- 
terization, particularly in smaller companies, but for the most part few 
presidents have the time to do creative engineering work or even to 

Table 6-17. President's Participation in the Engineering Function 

(In per cent) 

President takes active part in problems of design, research, and product develop- 
ment: 

Average for all presidents 

Presidents of companies with sales of: 

$5 million or less f 

$6-10 million ^ ^ 

$11-50 million ^^' 

Over $50 million • • ■ ^ 

President delegates this rather completely, except for review, discussions on major 
projects, amount to be budgeted, and the like: 

Average for all presidents 90 

Presidents of companies with sales of: 

$5 million or less •, ^^ 

$6-10 million ^^ 

$11-50 million ^' 

Over $50 million 1^^ 



THE president's JOB 177 

supervise such work closely. In this connection, I am reminded of the man 
who turned over the reins of a successful company he had founded to his 
son and, at a rather advanced age, founded another company, because 
the original firm "got so damn big and complicated I didn't have time 
to do anything in the shop." 

It should be pointed out that even though only lo per cent of the 
presidents interviewed take an active part in the engineering function, 
fully 70 per cent said that they are vitally interested in new products as 
one of the principal ways of achieving growth. 

Other Facts of Interest about Presidents ■■- 

In making its survey, MEC found that, on the average, the working 
hours of the presidents interviewed were apportioned as follows: 

In office 66%. 

Out of office, but on company property 11%^ 

Away from office 23%-, 

MEC also found that in conducting their business the presidents inter- 
viewed divided their time in the following way: 

In committees and large discussion groups 12% 

In small groups 57^/^ 

Alone .... 20<y .' 

With personal secretary 1 1 % ? 

The time spent in small groups and with personal secretary was fairly 
constant, regardless of company size. As would be expected, however, the 
time spent in committees and large discussion groups increased with 
company size. And as a result, presidents of larger companies spent less 
time alone in their offices. 

Even though the average president spends many hours in committee 
meetings, most seem convinced that the committee form of management 
is not workable as long as committees are called upon to make decisions 
and take action. In this regard, I think of the classic statement made by 
the late Charles Kettering of General Motors, who, upon hearing that 
Lindbergh had flown the Atlantic alone, muttered testily, "It would have 
been even more amazing had he done it with a committee." 

AMA points out that only one company president in five has had 
training in an executive development program. This increases to one in 
three among younger presidents. An interesting sidelight is the comment 
of a president of a very large organization: "I buy these programs for 
other executives in my company, but I'm too busy to take them myself." 

Of the 335 presidents surveyed by AMA, quite a number have no idea 
of ever taking advantage of their pensions. AMA says that the majority 



|»7g THE MANAGING FUNCTION 

will retire at 65 or thereabouts, another 22 per cent will retire before that 
time; 22 men say that they will quit somewhere between 66 and 69; 18 
want to go past their 70th year; 16 stated that they will never retire and 
"that they intend to be carried out with their boots on." No doubt they 

will. 

Are presidents happy about their choice of a career? A resounding 
"yes" is reported by every survey, and most admit that they would do 
exactly the same things all over again if given the chance. 

CONCLUSION 

We have examined the president from the theoretical standpoint, and 
we have examined many of his characteristics, his background, and what 
he does with his time. This may be of help to others, but it is obvious 
that few conclusions can be drawn. The successful president of a company 
is an uncommon species in an era whose collective heart beats for the 
ever-present common man. 

I am reminded of a portion of the president's job description of one 
of our largest corporations: "He may delegate portions of his responsibil- 
ities, consistent with sound operations and authorized policies and pro- 
cedures, together with proportionate authority for their fulfillment, but 
he may not delegate or relinquish any portion of his accountability for 

results." 

This, then, is the crux of the president's job, is it not? 

Let us face the fact that there is no such thing as a typical company 
president. One may be a man from sales; another from research: still 
another from engineering and production; and still another rises slowly 
through many corporate activities, with no badge of education upon 

which to rely. 

The challenge offered to one who aspires to be a company president, 
a leader, is a great one. There are no road maps because there are no 

roads. 

Perhaps this, then, is the challenge. A manager can read about mam 
things, he can become expert on many things, but this does not mean 
that he will become a company president. He must, as did our early 
pioneers in exploring the great forests which stretched westward almost 
unendingly, blaze his own trail. 

And with the many new frontiers being created in management, the 
trail should, indeed, be worth the blazing. 



PART TWO 

Management by Objectives 




LeRoy A. Petersen 

PRESIDENT 

OTIS ELEVATOR COMPANY 

NEW YORK, NEW YORK 



From a small town in Wisconsin to the head of a major industrial or- 
ganization is a big step, but L. A. Petersen, president of Otis Elevator 
Company, made it. He was born in Amery, Wiscoiisin (present popu- 
lation approximately 2,000), in 1893 and became president of Otis in 

'945- 

LeRoy Petersen doesn't believe in wasting time. When he graduated 

from the University of Wisconsin in 1917 with a B.A. degree, he had 
already worked for two years as assistant principal in Westby. Wiscon- 
sin, and as high school principal and superintendent of schools in 
Norwalk, Wisconsin. He is a Phi Beta Kappa and a member of 
Omicron Delta Gamma. 

After serving in the Army in World War I and attaining the rank 
of first lieutenant, he joined Otis Elevator as a student management 
trainee. Mr. Petersen spent 1923 and 1924 in Atlanta, Georgia, as a 
salesman and then moved to Springfield, Massachusetts, as branch office 
manager. Mr. Petersen ivas named general sales engineer in 192^ and 
served in that capacity for ten years. In 1935^ f^^ ^^'^^ '"«^^ assistant 
general zone manager and three years later, in 1938, was named vice 
president. He was elected to the board of directors and made executive 
vice president in 1943. For the past fifteen years he has seroed as presi- 
dent of Otis Elevator Company. 

Mr. Petersen is chairman of the board of Otis Elevator Company 
Limited, Canada, and serves as a director of Otis Elevator Companies 
in England, South Africa, and Australia. He is also a director of several 
well-known United States corporations, including the Irving Trust 
Company, the Metropolitan Life Insurance Company, Corn Products 
Company, Carrier Corporation, ALCO Products Incorporated, and 
the Ruberoid Company, Incorporated, of New York. 

He IS a trustee of Consolidated Edison Company of New York, In- 

Photo by Fabian Bachrach 



180 



corporated, and a member of the investment committee of Employers' 
Liability Assurance Corporation in Boston, Massachusetts. 

An extremely heavy travel schedule is attested to by the locations 
of the clubs in which Mr. Petersen maintains membership. In addition 
to the Union League Club and the University Club in New York City, 
the Round Hill Club, Greenwich, Connecticut, the Blind Brook Club, 
Port Chester, New York, and the Clove Valley Rod and Gun Club, 
LaGrangeville , New York, Mr. Petersen is president of the Anglo- 
American Fish & Game Club, Rimouski, Quebec, and is a member of 
the Royal ir Ancient Golf Club of St. Andrews, Scotland, and the 
Augusta National Golf Club, Augusta, Georgia. 

Reading over the names of these clubs makes it clear that Mr. Peter- 
sen's favorite recreations are fishing, hunting, and golf. 

Mr. Petersen is married and the father of two children. He and his 
wife reside in Greenwich, Connecticut. 



CHAPTER 7 

Establishing Objectives 



OBJECTIVE— That toward which effort is directed; an aim or end of action; goal. 

(Webster's Dictionary) 

Management consists primarily in determining and maintaining ob- 
jectives and then planning ways and means of attaining them. Objectives 
are prerequisites for a sense of direction, without which any amount of 
effort may be wasted and dissipated in aimless and self-canceling activity. 

Objectives must be sufficiently definite to be put in words and suf- 
ficiently realistic to be attainable. To help establish a route, there must 
be both long-range and short-range objectives. A single long-range ob- 
jective, like a far-distant destination, leaves such a wide choice of routes 
as to offer little help in planning for the immediate future. 

We are taught in mathematics that more than two points are required 
to establish a curve, and since few if any business enterprises are able to 
follow a straight line without deviation from their beginning to the 
attainment of this ultimate goal, intermediate goals are necessary as way 

181 



. (.n MANAGEMENT BY OBJECTIVES 

Stations on the road which twists and turns to avoid the major obstacles 

along the way. ^^ ■ ^ u • 

Obiectives must be specific and so restricted as to offer a limited choice 
of ways and means. For instance, the objective of making money is so 
general as to offer an almost infinite choice of methods and so fails to 
establish the essential sense of direction. 

Even if the objective of a business is no more exalted than a desire to 
make money, it is necessary to predetermine that the attempt to make 
money will be limited to a narrow field of endeavor in which the prospec- 
tive company will have the advantage of some special knowledge, experi- 
ence, capacity, or idea. It must offer a product or service for which a 
need or desire exists or can be created and for which customers will be 

willing and able to pay. 

It may be a new product or service, or it may be an old product or 
service which is salable at a profit because of lower cost or better quality 
or because of the advantage of location. There must be a good reason to 
expect that, for one reason or another, there will be a profitable market 
for what is produced. 

OBJECTIVES OF OTIS ELEVATOR 

For example, the Otis Elevator Company had its beginning in Septem- 
ber, 1853, when Elisha Graves Otis-a mechanic in a bedstead factory m 
Yonkers New York-found that there was a market for elevators equipped 
with a safety device which was demonstrably effective in preventing the 
elevator from falling if the hoisting ropes should break, as they not 
infrequently did. 

Sales during the first year totaled $900. Sales in 1958 amounted to more 

than $290,000,000. 1-11 

It might therefore be interesting to consider the objectives ^vhich lla^e 
established the direction of growth of this more than a centurv old 

company. . 

These objectives are outlined in a statement which I addressed to the 
employees and stockholders of the Otis Elevator Company at the time 
of the one-hundredth anniversary of the company in 1953: 

The year 1953 is for Otis both an end and a beginning. It is the end of a 
century during which the name Otis became synonymous ^vhh the .vord elevator: 
it is the beginning of a second century of continued Otis leadership and develop- 
ment in the field of vertical transportation. 

During the past hundred years, the men and women of Otis have, bv hard 
work trial and error, and occasional flashes of genius, built a company and a 
product of which we today have just reason to be proud, and, m the douig, they 
have contributed greatly to the building of their country. 



ESTABLISHING OBJECTIVES 183 

The Otis Heritage 

During this first century, there evolved an Otis organization whose character 
reflects the composite character, judgment, and ideals of those leaders of the past 
who, generation after generation, selected and trained and inspired this organiza- 
tion. It is an organization whose roots go deep into the past and which has a 
tradition of loyalty to the company not easily understood by those who are not 
a part of it. 

Similarly, the organization of the future will, to a considerable degree, reflect 
the judgment, character, and ideals of those who now have a voice in the selection 
and training of those who will follow us. Clearly, it is our obligation to pass on 
to our successors an organization no less qualified for their task than the organ- 
ization which we inherited and with which we have had the privilege of working. 

During the past century, Otis established and maintained a reputation for 
designing, manufacturing, and installing the best elevators available. At the 
same time, we built a reputation for trustworthy performance and fair dealing, 
which resulted in our becoming not only the world's largest producer of elevators, 
but also a producer whose product commands a premium price. 

That this position is not the result of chance, but rather the result of a delib- 
erate policy and of a conscious goal, is evident from the objectives outlined by 
Charles Otis in 1877: 

"It should be our aim," he said, "to make our work satisfactory to our cus- 
tomers, not alone until we get our pay for each particular job, but until we get 
paid for every job we ever intend or expect to do for anyone, to the end of 
time; to get every customer we can and to keep every one we get— both for his 
work and for his influence. 

"We must keep in mind," he said, "that the great objects of doing business 
are (1) to give occupation, (2) to achieve success, and (3) to make money, and that 
we shall not accomplish very much of the first two of these objects if we fail in 
the last." 

Our Goal for the Future 

At the beginning of our second century of operation under the name of Otis, 
it is appropriate to consider what we r\ow regard as our purpose and objective 
and what we now believe to be the justification for our continued existence. 
Without attempting to be epigrammatical, it seems to me that our objective 
should be: 

To build the best products in our field; to continually improve these products 
in design and in method of production and installation so that they can continue 
to be sold at a profitable price sufficient to: 

1. Permit payment to investors of a return on their investment which will 
furnish an adequate incentive to save and invest in this or other useful com- 
petitive enterprises 

2. Permit stable employment of a carefully selected and trained organization 

3. Make possible such wages, salaries, and working conditions as will result in 
the maximum incentive and capacity for production for the ultimate good of the 
greatest number 



|g^ MANAGEMENT BY OBJECTIVES 

This objective is based on the belief that the greatest good for the greatest 
number can result only from maximum production of useful goods equitablv 
distributed. It is also based on the belief that maximum production is obtainable 
only through competitive enterprise, with such incentives as are necessar^' to 
prompt capital to provide the required tools and to stimulate all types of labor 
to the greatest possible productive effort consistent with their spiritual and 
physical well-being. 

It will be noted that, in common with Mr. Charles Otis, we contmue to 
recognize that, first and foremost, the purpose of a business must be to satisfv its 
customers to the end that they will continue to buy the product at a profiable 
price. Failing in this, all other objectives must be abandoned-including the 
fundamental objective of continued operation. 

Obviously, a successful business must provide for its own future existence if 
it is to accomplish anything else. However, mere existence is the minimum re- 
quirement. The real justification for a company's surAival must be measured bv 
the contribution which it makes to the general welfare. 

In common also with Mr. Otis, we recognize the importance of providing 
employment-but only when employment results in, or contributes to. useful 
production or gratification of human needs. Employment which merelv wastes 
time is a criminal waste of human lives and human energy and is grosslv incon- 
sistent with the objectives of a legitimate business. 

Our Personal Obligation 

The ideal for which we should strive is a company ^hich provides everv 
person in its organization with frequent opportunity to test his maximum 
capacity and which provides a constant incentive to increase that capacity and 
to devote it to useful ends. 

There is so much in this world that requires doing and the doing of it requires 
so much human energy and intelligence that we cannot tolerate that which 
wastes this energy and intelligence and which stultifies the ambition which is 
necessary to make it do useful work. We must measure our own individual success 
not primarily by the position we attain but by the extent to ^vhich ^\•e are 
utilizing to the utmost the talents and capacity with which we are individuallv 
endowed and also by the extent to which we make it possible for others to do 
the same thing. 

The Role of Competitive Enterprise 

The United States has reached a position of world leadership primarilv. I be- 
lieve, because, throughout the greater part of its history, emphasis has been laid 
upon the importance of the individual and upon the importance of maintain- 
ing individual opportunity and powerful incentives for individual effort and 
accomplishment. The resulting competitive enterprise has produced a standard 
of living and a capacity for production the like of which the world has never 

seen. 

Nevertheless, there has arisen a contrary philosophy, backed by the ruthless 
power of a foreign dictator state, and the American system of living and pro- 
ducing is on trial before the world. 



ESTABLISHING OBJECTIVES 185 

The Challenge to American Business 

Now, at long last, the American people have once more called upon American 
businessmen to restore the faith of the country in the basic principles upon which 
our nation was established and to stage such a demonstration of the advantages 
of democratic competitive enterprise that the fallacy and folly of socialism and 
communism will be self-evident to all the people of the world who are free to 
learn— and, ultimately, even to those behind the iron curtain. 

It is a crisis greater than any previously faced by the American people. It is a 
challenge to the businessmen of the country which they must accept or fail 
miserably in the defense of the principles in which they have professed a pro- 
found belief. 

Our Share of the Job 

As a part of the business world, we share in the obligation to demonstrate 
the superiority of our system of democratic competitive enterprise in providing 
for the general welfare. 

Our share in this demonstration is to so work and so manage the affairs of our 
company as to help raise the level of accomplishment of the business community. 
Then confidently, aggressively, persistently, and intelligently we must acquaint 
first of all the people of our own country, and then the other people of the world, 
with what business is, has done, and can do and the vital part which business 
has played and must continue to play in building up and maintaining the stand- 
ard of living, way of life, and defense of our country. 

The Otis Elevator Company is to thousands of employees, stockholders and 
customers a representative of business and an example of the operation of the 
competitive enterprise system. It should be our purpose to make that example a 
good one. 



BASIC CONSIDERATIONS IN ESTABLISHING OBJECTIVES 

The preceding exposition of company objectives is necessarily incom- 
plete and is based upon the point of view of the management of a well- 
established company. To become well established, a company has neces- 
sarily had to demonstrate its capacity to make a sufficient profit to 
provide for its own continued existence and has already elected to offer 
products or services for which there is a market and for which the 
company has the necessary organization, facilities, know-how, and skills. 

In common with the prospective manager of a prospective business, 
however, the manager of an established business frequently faces the 
problem of considering the expansion of his business by the addition of 
new lines or of increasing his capacity to produce old lines. In both 
instances, similar questions must be faced and answered and objectives 
established. 

The number and variety of business objectives is almost limitless, and 



185 MANAGEMENT BY OBJECTIVES 

the methods of estabUshing and attaining these objectives equally ex- 
tensive and variable. For instance, the objective may be: 

1. To establish a new company to produce a new or old product or 
service 

2. To expand an existing business by: 

a. Securing a larger share of the existing market 

b. Increasing the market 

c. Adding to the number of products or services produced 

d. Acquisition of existing companies 

e. Increasing quality of present products 
/. Decreasing cost of present products 

g. Extending operations into wider territory or into other countries 

3. To strengthen an existing company by: 

a. Rebuilding the organization 

b. Improving public and customer relations 

c. Providing better manufacturing facilities 

d. Creating better management-labor relations 

Not only could this list be extended indefinitely, but the conditions 
applicable to each situation would be so different as to preclude any 
specific rule of procedure. However, one factor is applicable in all cases. 
Someone must determine what the objective is and, in general, what 
steps are to be taken to attain the objective. 

This "someone" is the real head of the organization or of the operation 
involved. It is probable that, in most instances, this decision will be 
reached only after as much information as possible has been assembled 
and evaluated with the help of company associates or outside con- 
sultants, but regardless of the thoroughness of the survey or the magni- 
tude of the information-gathering process, there are frequently blank 
areas in the jigsaw puzzle that must be filled in by the manager on the 
basis of his imagination and judgment. His ability to supplv this imagi- 
nation and judgment and his willingness to reach a decision after all 
available information has been obtained, even though incomplete, are 
what account for his being manager. 

Certainly the wisdom of assembling as many pertinent facts as pos- 
sible upon which to base a decision with respect to one or more companv 
objectives is self-evident; and the more complete the data and the more 
carefully they are analyzed and synthesized, the less the chance of 
error. Nevertheless, many important decisions which vitally affect the 
destiny of a company are based upon nothing more tangible than the 
manager's judgment exercised in the light of the manager's experience. 
Even in this day of extensive and elaborate navigational aids, there are 
times when a ship's captain is on his own and has to change speed or 
alter his course for reasons dictated wholly by his sense of seamanship. 



ESTABLISHING OBJECTIVES 187 

New company objectives may develop as a result of suggestions made 
to the manager by members of the manager's staff, and he should 
maintain a two-way system of communication that will encourage and 
facilitate such suggestions, together with supporting facts and reasons. 
But the responsibility for acceptance or rejection rests solely with the 
manager, if he is in fact the manager. 

In the process of deciding, for instance, whether or not it is desirable to 
embark upon a project involving new or additional products, considera- 
tion should be given by the manager to a number of factors, including 
the following. 

By market study of one kind or another, he must determine what 
demand exists or can be created for a given product or service and to 
what extent the existing demand has already been satisfied. He must 
also consider what qualifications he has or can acquire to enter this 
particular field and what useful contribution he can make that will 
permit his operations to grow in the face of the competition that will 
be encountered. 

The management of an existing business must also give careful con- 
sideration to the compatibility of existing and prospective new products 
and whether existing managerial talent is applicable to the new field 
or can spread itself to encompass the new field without harmful dilu- 
tion. 

The justification for the existence of a productive enterprise is gen- 
erally derived from the special knowledge, experience, or skill possessed 
by the employees or management, or both. The greater the degree of 
specialization, the more pronounced these qualifications become and 
the more reason why the product can be produced better or cheaper, 
or both. 

Diversification Objectives 

Diversification of product is advantageous to the extent to which 
demand for one product offsets the seasonal or cyclical lack of demand 
for another product and so contributes to stable employment and stable 
earnings. Unnecessary diversification, however, dilutes management and 
dilutes experience and special skills and sacrifices the claim to customer 
preference which would otherwise be based upon the justifiable belief 
that the specialized producer is better qualified than the Jack-of-all- 
trades who is master of none. 

A greater variety of products than is necessary to secure stability of 
production and earnings, or a variety of products which have nothing in 
common except a common corporate sponsor, will probably prove to 
be wasteful and uneconomic as well as destructive of prestige. 

Otis Elevator Company management has therefore been disposed to 



jgg MANAGEMENT BY OBJECTIVES 

seek only such diversification as is necessary for reasonable stability and 
will preserve its reputation as experts in its field. 

One factor in tfie determination of the variety of products to be 
manufactured is the question of whether participation in a new field 
will add to or subtract from the over-all prestige of the company. For 
instance, a company which has attained a position of prominence in one 
or more fields might well hesitate to enter still another field unless it 
can foresee the possibility of also becoming an important factor in this 
new field and unless it is prepared to devote the time, attention, capital, 
and managerial talent needed to attain this objective. Merely to dabble 
to the extent of remaining an unimportant factor in the new field would 
be inconsistent with the general importance of the company in its primary 
field and probably should be avoided as a subtraction from the over-all 
reputation of the company. There is such a thing as being too small a 
toad in a big puddle, and unless an added activity can be made to 
enhance the prestige of an organization, it is apt to detract from it. 

Volume Objectives 

There is, of course, also the possibility of being too big. Although this 
position is harder to attain, it is sometimes accomplished not onlv bv 
too many diverse operations but by failing to determine the optimum 
size consistent with the nature of the product or service sold and the 
competitive conditions that exist. Many successful small enterprises whose 
success has been dependent upon the personal attention of an owner 
or manager serving a small clientele or group of discriminating customers 
have developed into large failures when they grew to a size beyond 
the capacity of the personal management which their prior success 
demanded. 

Other larger concerns of a less personal character have also found that 
the extra layers of supervisory and managerial talent and the more 
complex accounting and personnel systems required when they have 
aspired to grow a few sizes larger have taken a larger percentage of the 
available spread and so have left a lower margin o£ profit. 

Conceivably, a lower margin of profit on a larger volume would yield 
more dollars, but it is highly important that careful consideration be 
given to the effect upon competitive prices of an attempt to increase one's 
volume by securing a higher percentage of the available volume. 

My experience as a director of a number of companies in diverse fields 
has shown that many industries go through a series of alternate periods 
in which one or more companies attempt to enlarge their participation in 
the sales of the industry by reducing prices, only to encounter retaliatory 
price reductions by other companies that naturally attempt to prevent 
the growth of a competitor at their expense, with the result that the 



ESTABLISHING OBJECTIVES 189 

whole industry price falls to an unprofitable level. Such periods of 
unrealistic price cutting are normally followed by periods of upward 
price adjustment dictated by a common recognition of the necessity of 
avoiding continued loss. These periods of common sense last only until 
the lessons of the last price war have been forgotten by one or more 
companies that are impressed with the advantage of volume but fail to 
consider the effect upon the price level of their attempt to enlarge their 
volume by encroachment upon the volume of others. 

Among the most important and constant problems of management is, 
therefore, the determination of optimum size, which, as previously men- 
tioned, involves consideration of number and variety of products, effect 
of size upon efficiency of operation, and whether or not additional size, 
if otherwise desirable, can be attained without destructive and unen- 
durable price cutting. 

Market Objectives 

A corollary problem is the determination of whether one's objective is 
to be a large producer of relatively low priced products for a mass 
market or a producer of relatively higher quality and higher priced 
products for a more limited market. The techniques and facilities and 
organization required are generally quite different, and seldom, if ever, 
can both objectives be realized by the same organization. General Motors 
Company, it is true, offers a variety of cars within a wide price range, 
but each distinct type of car is designed, manufactured, and marketed 
by a separate and largely independent organization. 

Regardless, however, of the choice made between mass production of 
low-priced products or limited production of higher-priced products, a 
company will remain in a precarious position so long as its costs are 
higher than those of competitors offering products of comparable quality. 
Every company must, of necessity, have as its objective the reduction 
of its costs to the point where they are no higher than those of its most 
efficient competitor. Only then will it be in a position to ride out with 
confidence the recurring periods of competitive price cutting, and only 
then will it cease to be dependent upon the maintenance by its com- 
petitors of a price level sufficiently high to permit a profit to be made. 
If, however, its costs are such that, at any given price level, it will lose 
no more or make as much as its competitors and if its prestige and 
reputation have been maintained, its continued existence is assined. 

ATTAINING OBJECTIVES 

Cost reduction must, of course, be a repetitive if not a continuous 
process. It may safely be assumed, therefore, that every company must 



igQ MANAGEMENT BY OBJECTIVES 

from time to time stage a concerted campaign to reduce its costs, so it 
is a good objective to use as an illustration of the steps required in the 
attainment of any objective. 

Let us assume that the need for a specific amount of cost reduction 
has been recognized and that the manager has established and announced 
the objective of securing this cost reduction. Obviously, this is but the 
first step. He must thereafter direct the procedure which is to be followed 
and specify by whom the work is to be carried out. From his own general 
knowledge of his company and product he must determine where reduc- 
tions in cost appear to be possible and most readily obtainable. In all 
probability, the excess cost will be found in a multitude of places and 
not concentrated in a single spot or operation. It may be a problem 
of engineering design, or of manufacturing efficiency, or of excessive 
administrative overhead, or of unnecessary sales expense, or of all of 
them put together. 

Normally, he would call together those responsible for each major 
function and outline to them the need for cost reduction and the reasons 
which dictate the program he is about to launch. He will include the 
controller and budget director and make one of them responsible for 
the coordination of the campaign. 

Since any such objective can be attained only by the cooperative effort 
of all who are in a position to influence cost and control expense, a 
system of communication must be established which will make clear 
the objective and the reasons which justify it. 

The manufacturing executive will be instructed to outline the program 
to his plant managers, superintendents, and foremen, and the sales 
executive will likewise enlist the cooperation of his sales and district 
managers. The chief engineer will be asked to impress his designing engi- 
neers with the necessity of being cost-conscious and the importance of 
giving consideration to those factors ^vhich simplifv manufacturing. The 
controller or general office manager will be asked to studv the general 
system of paper work with the objective of simplification and elimi- 
nation. 

This group of executive and administrative heads together constitute 
a cost-reduction committee, and the controller is designated to report 
periodically on the results obtained. 

It is apparent, therefore, that up to now the steps involved have been: 

1. Determine objective. 

2. Organize and assign responsibility. 

3. Enlist cooperation by providing for the communication necessarv 
for thorough understanding. 

4. Provide for measurement of results. 

If a company operates a number of plants or divisions or separate 



ESTABLISHING OBJECTIVES 191 

entities, a comparative study should be made of the cost and expense as- 
sociated with each plant or division, and the lowest cost or expense 
ratio that any of the company units has attained at any time should 
be adopted as a minimum requirement. 

Because it is evident that "what man has done, man can do," it is 
reasonable to expect a company to equal the best previous performance 
of any of its components and to make comparisons with a composite 
picture made up of the selected best features to be found in the entire 
operation. 

The Otis Elevator Company operates in the United States through 
the medium of ten districts, or zones, each of which conducts its business 
of selling, installing, and servicing elevators as though it were a separate 
elevator company, subject only to general company policies and standards. 
Each operates on an individual profit-and-loss basis, and accordingly, 
we have ten similar operating units among which a large number of 
comparisons can be made. 

Each zone is therefore measured against a hypothetical zone created by 
combining the best features of all zones, and each zone is rated accord- 
ingly. Similarly, the performance of each Otis factory is checked against 
the best that any other Otis factory has done. 

It is more or less evident that most things in this world are good or 
bad, high or low, or large or small only by comparison with something 
else. If an attempt is made to establish absolute values without the 
benefit of comparative data, the result will be no better than a guess. 

At one time, the construction costs of each Otis zone were measured 
only against the zone's own estimate. The introduction of a uniform 
estimating system revealed a wide difference in construction efficiency, 
and when the performance of the zone with the best construction record 
was adopted as a required standard, a 30 per cent reduction in average 
construction costs was realized. 

In my opinion, the most important single obligation of management 
is to determine what should be considered par for the course and then 
to devote its efforts to developing an organization that will try to beat 
par. Employees will do no better than their own conception of a good 
job, unless they have reason to believe that a better job is possible and 
required. 

If, in due time, it appears that a general program for the reduction of 
cost and expense is unproductive because of a disposition on the part 
of division and department heads to regard their own costs and expense 
as irreducible and to look to others to provide the required savings, it 
may be necessary for the manager to assign to each division a specific 
quota, although this presupposes his ability to appraise fairly and ac- 
curately the amount of reducible expense or cost associated with each 



jg2 MANAGEMENT BY OBJECTIVES 

division. This presupposition may or may not be justified, but the 
extent to which his specific demands prove to be excessive is apt to 
become apparent in time to prevent any permanent damage. 

Arbitrary as this procedure may seem, in some cases it may be the 
only way by which the necessary reductions can be secured. Admittedly, 
however, this practice should be resorted to only when conditions do not 
permit utilization of more normal methods of motivation. 

Motivating 

Communication must be adequate to give a clear understanding of the 
justification for the objective and sufficiently explicit to give a general 
idea of how it is to be obtained. Actual accomplishment will probabh 
depend upon the ingenuity of numerous individuals and upon a common 
and urgent desire to realize the objective because it is in some wav 
associated with self-interest or personal desires. 

If attainment of the objective is clearly and demonstrably m the 
interest of the company, management must succeed in establishmg a 
self-evident relationship between company interest and the mterest of 
the individual. This can be done in a number of ways, some of ^vhich 
are positive and some negative. The following are some of the positive 

influences. , 

Loyalty to Company. In most successful companies, a general sense ot 
loyalty to the company may be taken for granted and represents an 
important and essential cohesive force without which it would be dif- 
ficult if not impossible, to accomplish any constructive or sustained 
program. This spirit of loyalty is compounded of pride of association, of 
a sense of reflected glory, of a feeling of identity with and participation 
in the accomplishments and prestige of the company, and of personal 
friendship for individuals and groups of associates. It acts as an indis- 
pensable lubricant without which vast amounts of energy would be 
dissipated in destructive friction. It is hard to harness, however, as an 
effective force capable of being focused on the accomplishment of a 
specific project. It is possible, also, that the intensity of the feeling of 
company loyalty varies inversely with the size of the organization, just 
as it is probable that a student at a large university does not ordmarilv 
acquire the same sense of fanatical school spirit as a student at a small 
college The larger the organization, the less personal are the relation- 
ships and the less intimate are the associations, largely because of the 
dilution of numbers. Nevertheless, in all companies, large and small, 
company loyalty is an important force for good that must be developed, 
maintained, and utilized. It would be a mistake, however, to place 
complete dependence upon company loyalty alone. 

Loyalty to Manager, This may be an extremely effective appeal if lovaltv 



ESTABLISHING OBJECTIVES 1~9B 

exists. Loyalty to an individual is normally more intense than loyalty 
to an institution, but the existence of personal loyalty cannot be so 
generally assumed. It depends upon the personality of the manager and 
upon his ability to develop a close personal relationship with those with 
whom he associates. Although this is a highly desirable trait, it is not 
necessarily a common characteristic of all good managers. When added to 
the other requirements of a good manager, a natural flair for creating 
and maintaining an atmosphere in which intimate friendships grow 
and prosper is undoubtedly a great asset, but a spirit of comradeship 
unsupported by other essential ingredients is clearly inadequate. 

Conceivably, a good manager may be one who gives no cause for ill 
will or antagonism and who operates justly and fairly but with an im- 
personal reserve which does not encourage the development of a personal 
following. In any event, it is unlikely that, in a large organization, this 
personal relationship will be sufficiently extensive to accomplish by itself 
the results required. 

Perhaps a more dependable consideration is the understandable desire 
on the part of an employee to be well regarded by the manager. This 
desire is readily attributable to a number of considerations, including, but 
not limited to, the fact that the opinion of the manager will have a 
bearing upon the employee's salary, upon his future promotion, or even 
upon his future employment by the company. 

Promotions and Salary Increases. All people respond to praise, and some 
deserve it. A desire for praise is a universal characteristic, the only variable 
being in the form and quantity that is found most acceptable. If, there- 
fore, the manager finds or can create an opportunity privately or publicly 
to praise an individual or group for the contribution that has been made 
to the attainment of an objective, while withholding similar praise from 
those whose contribution has been less satisfactory, he may be providing 
a reward of great value and an incentive to others to merit similar notice. 

The most tangible form of praise is expressed by a promotion or by a 
salary increase attributed to merit. In a broad sense, labor, clerical 
help, and professional and managerial talent are commodities for which 
a market price exists. The competition among all companies for com- 
petent people necessitates maintaining a scale of wages and salaries that 
will attract and keep the type of people required. 

The requirements for most commercial jobs can be defined sufficiently 
precisely to permit a fairly accurate job description to be written and the 
minimum qualifications outlined in terms of education, experience, and 
aptitude. Such jobs can therefore be classified and graded in the order 
of difficulty or at least in the order of number of available qualified candi- 
dates. This may result, for example, in ten labor grades and fifteen salary 
grades, with each grade having a minimum and maximum with a spread 



jg_^ MANAGEMENT BY OBJECTIVES 

between them ranging up to 40 per cent. Employees in each grade are 
normally hired at or near the minimum rate and increased from time 
to time as they acquire experience and greater competence. Similarly, 
promotions from one grade to another are ordinarily at a wage or salary' 
below the mid-point of the new grade. In a completely static organization, 
merit increases would have the effect of increasing the level of wages 
and salaries beyond that attributable to general increases which reflect 
changes in the labor market. However, in a nonstatic organization, new 
employees and those who replace others who are promoted into higher 
grades or retired have a beginning wage or salary lower than those re- 
placed. The cost of merit increases should therefore be approximately 
offset by the savings due to rotation of organization. 

Some jobs must remain unclassified, either because they do not lend 
themselves to a precise job description or because the required qualifica- 
tions for the job are not directly related to such measurable factors as 
extent of education or degree of experience, but rather upon such un- 
measurable characteristics as judgment, natural aptitude, imagmation, 
initiative-or even a spark of genius. The salary evaluation of such 
jobs is a responsibility of management and requires careful individual 
consideration and the exercise of the best possible judgment. Survevs of 
what other companies pay for similar jobs are helpful only to the extent 
to which it can be determined that the jobs are similar, and in the end. 
the problem may be one of general appraisal by the chief executive. It 
is to be hoped that most chief executives are possessed of a sense of 
personal valuation which will permit them to determine ^diether an 
unclassified job is properly a $10,000 job or a $50,000 job or should be 
put in any one of the seven $5,000 slots in between. More exact evaluation 
will probably be determined by comparison with other more or less 
related salaries in the organization. 

In determining the proper salary for an unclassified job, primarv con- 
sideration must be given to the value to the company of the job as 
performed, rather than what the individual could secure from another 
company if he were to resign his present position. Because of the 
specialized nature of the job, the experience which the emplovee 
has accumulated and the ability he has displayed may not have com- 
parable value to another company, and, in simple justice, advantage 
must not be taken of the fact that he does not have another market for 
the ability and experience he has acquired. On the contrary, considera- 
tion should be given to what it would cost to acquire another emplovee 
of equal ability and to give him the training necessary for him to per- 
form the job equally well. 

Management's prerogative of determining who are to be promoted 
and who are entitled to receive merit increases and when and ho^v much 



ESTABLISHING OBJECTIVES 195 

furnishes an effective incentive to most employees to be reasonably 
cooperative in the attainment of management's objectives. This preroga- 
tive obviously carries with it the obligation to exercise as complete 
fairness as the information and judgment available permit, and the 
effectiveness of the use of this prerogative will depend upon general 
acceptance of the belief that management is, or at least does its best to be, 
fair. 

Additional Financial Incentives. Fair and adequate salaries and the 
judicious use of promotions and merit increases should provide the incen- 
tive for a good normal performance, but may not be sufficient to bring 
about the unusual effort necessary to accomplish a difficult objective, 
because it is not always apparent that fair salaries, promotions, and merit 
increases are completely dependent upon the attainment of the objec- 
tive. 

The earnings of a company are, however, clearly determined by the 
extent to which it accomplishes such objectives as: 

1. Increased volume 

2. Increased spread between cost and selling price by reason of either or 
both 

a. Reduced cost 

b. Increased selling price r - ■ ,. 

3. Reduced expense . 

4. Improved quality 

5. Good employee relations 

6. Better customer relations 

An additional direct incentive to make the extraordinary effort neces- 
sary for the accomplishment of such objectives may therefore be provided 
by one or more forms of employee participation in company profits: 

1. A general distribution of a portion of company profits to all em- 
ployees on the basis of a uniform percentage of wages or salaries fails to 
distinguish between the industrious and the indolent and rewards indis- 
criminately the one who drags his feet and the one who exerts himself 
above the average to accomplish company objectives. It may therefore 
serve to discourage special effort rather than to encourage it. 

2. Stock-purchase plans encourage the ownership of company stock 
and so give the employee who takes advantage of the plan a small 
stockholder's point of view and a direct interest in the company earnings 
and in the stock-market price of the stock. Such plans are subject to 
the limitation that the ability of an employee to participate is dependent 
upon his other financial obligations, and if he does participate, he may 
suffer a loss, inasmuch as the stock-market price is influenced, if not 
determined, by numerous unpredictable factors which may more than 
offset improved company earnings. The reward for extra individual 



295 MANAGEMENT BY OBJECTIVES 

effort is therefore uncertain, and, in any event, the causal relationship 
may be too remote to serve as a stimulant. 

3. Stock-option plans limited to managerial employees reduce the ele- 
ment of personal risk involved in stock-purchase plans and give to the 
employee a contingent reward dependent remotely upon his own con- 
tribution to company welfare, provided this improved company welfare is 
reflected proportionally in the stock-market price of the stock. Unfor- 
tunately, however, a slight improvement in company earnings may be 
accompanied by a substantial increase in the price of the stock or bv an 
equally substantial reduction. Once more, the relationship between 
cause and effect is something less than certain. 

4. In my opinion, the most direct incentive to make above-normal 
effort to accomplish company objectives as determined by top manage- 
ment is furnished by the selective award of substantial bonuses to those 
who have made the most effective contribution to the attainment of 
designated goals. Such a plan has been employed effectively by the Otis 
Elevator Company for a number of years, and on the basis of our experi- 
ence it is to be recommended. It has been designated the incentive 
compensation plan and has been approved and reapproved bv the 
stockholders. Under the rules of this plan, an appropriation to a reserve 
may be made by the board of directors from the net after tax profits of 
any year, which may not exceed 10 per cent of the amount remaining 
after subtracting from net after tax profits 6 per cent of average net 
worth during the year. All or part of this reserve may be awarded to 
managerial employees in any one year in accordance with the judgment 
of an incentive compensation committee made up of nonofficer and non- 
eligible members of the board of directors. This action by the board and 
by the committee is permissive and not obligatory. 

In practice, an appropriation to this reserve has been made each year 
since 1950, although not always the maximum amount permitted by the 
plan. Each year, the committee has also authorized awards to managerial 
employees, but not the full amount of the reserve, since the unused 
portion of the reserve may be allowed to accumulate to a maximum of 
twice the amount distributed in the previous year. The awards to 
individual managerial employees may be all in cash, half in cash and 
half in stock, or all in stock, depending upon the salary classification of 
the employee. 

The stock awards are contingent upon a variety of conditions, includ- 
ing continued service to the company until death or retirement, and distri- 
bution of stock contingently awarded is made in from ten to fifteen annual 
installments following normal retirement. Pending distribution, the stock 
accumulates earnings equivalent to dividends paid on the stock, and 
these earnings are also distributed in from ten to fifteen installments. 



ESTABLISHING OBJECTIVES 197 

Awards to managerial employees, with the exception o£ senior officers, 
have been made in accordance with recommendations of the chief execu- 
tive. These recommendations have been based upon a careful appraisal 
of the contribution made during the year to the accomplishment of 
company objectives and have not represented a uniform percentage of 
salary. As a matter of fact, the percentage of salary has been highly 
variable. 

The equity of distribution clearly depends upon the judgment of top 
management assisted by the judgment of department and division heads 
with respect to those who serve under them. This is no easy task and 
requires a great deal of time and thought, but the importance of the 
decisions involved fully warrants the time required. A desirable by- 
product of this annual analysis of individual performance is the increased 
familiarity with the key personnel of the organization acquired by the 
chief executive. Furthermore, since each award is presented to each 
individual privately and confidentially by his immediate superior, it 
furnishes a natural and favorable opportunity for a discussion of the 
strong and weak points of the employee's performance, future prospects, 
and opportunities and a general review of the questions which the 
employee may wish to ask. 

Since the incentive compensation is not a substitute for a fair and 
reasonable salary, it is not a matter of personal right and is received 
by the employee as a supplementary reward for a plus performance. As 
such, it is a personal matter and does not become a subject of con- 
versation with others. Invidious comparisons have therefore not been 
experienced. 

Division and department heads are familiar only with the awards 
made to themselves and to their subordinates, and the make-up of the 
entire list is confidential to the incentive compensation committee of 
the board of directors, the treasurer, and the chief executive and his 
secretary. Awards to the three highest-paid officials are published in the 
annual proxy statement. ' 

The outstanding merits of the plan are: 

1. The amount received by an individual is dependent partly upon 
the annual earnings of the company, since this determines the fund 
available, and is directly dependent upon the judgment of his superiors 
as to the extent to which he has contributed to the objectives which 
have affected earnings. There is, therefore, a direct and constant incentive 
to make the best of his opportunities to accomplish these objectives. 

2. There is no risk of personal loss involved, except of contingent 
awards through faihire to fulfill the required conditions. 

3. The younger and lower-salaried managerial employees with present 
family and financial obligations receive cash. 



jgg MANAGEMENT BY OBJECTIVES 

4. The older and higher-salaried managerial employees who are more 
interested in future income than present income receive contingently 
awarded stock with dividend equivalents added, the future value of 
which depends upon future as well as present earnings, and so encourages 
the adoption of policies and decisions consistent with the long-term 
interests of the company. 

5. The existence of a reserve accumulated out of past appropriations 
makes possible a distribution of awards even in a year of relatively low 
earnings, since it is recognized that such reduction in earnings may be 
due to causes beyond the immediate control of the managerial employees 
and, in such a year, the efforts they are called upon to exert mav be 
greater than ever. 

These are some of the positive actions that may be taken bv a top 
manager to motivate his organization to make an all-out effort to attain 
the objectives he has established. 

A negative approach may consist in demonstrating that those who don t 
turn in a satisfactory performance will be demoted or discharged, and 
there may be instances where this may be the only recourse. Nevertheless, 
it is doubtful if any business organization ever accomplished great results 
or attained even modest objectives with no inspiration but the lash of fear. 

SUMMARY 

Long- and short-term business objectives are essential for a sense of 
direction and for the selection of routes to be followed. It is the function 
of the top manager-whatever his title-to determine and define these 
objectives and to develop the methods, facilities, organization, and incen- 
tive necessary for their attainment. The importance of this responsibilitv 
is difficult to exaggerate. 

A Scottish nobleman of the seventeenth century, impressed by the great 
influence of folk songs and ballads, is reported to have said, "Give me the 
making of the songs of a nation and I care not who makes its la^ss." 
How much greater are the opportunities and responsibilities of those 
who, in an economy of competitive free enterprise, are charged with the 
duty of choosing the objectives of the thousands of companies which 
together shape the character of the Western world. 

Business is the foundation upon which our society is built, and the 
management of business has become a profession which must be governed 
by a code of ethics no less exacting than that imposed by Hippocrates on 
physicians and surgeons. _ . 

This ethical conception of the role of business can find no more realistic 
expression than in the goals that business strives to attain. It must be 
recognized that the mainspring of business is the profit motive, that 



ESTABLISHING OBJECTIVES 199 

reasonable profits are not only legitimate but fundamentally necessary, 
that competition is the life of trade, and that the rules properly provide 
for the survival of only those companies that, when tested in the crucible 
of competition, prove themselves fit. 

Nevertheless, the manager or business leader whose goals, ambitions, 
and aspirations can all be satisfied by the figures on an income state- 
ment and balance sheet has clearly failed to recognize his additional obli- 
gations to make his business serve the needs of society and contribute to 
the general welfare. He has also failed to derive from his profession the 
great personal satisfaction of consciously striving for social and spiritual 
ideals that cannot be measured in money. 




Henry Blackstone 

PRESroENT 

RVO CORPORATION OF AMERICA 
CKSVILLE, NEW YORK 



To refer to a forty-four-year-old company president as "one of this 
nation's pioneers in guided missiles" seems rather unusual. But Henry 
Blackstone, who founded Servo Corporation of America in 1946 and 
has been president ever since, has a most unusual background. 

He was born on a farm in Idaho and, since he was the only boy in 
a family of four children, learned the meaning of hard work very early 
in life. When he was nine, the farm failed, and the family moved to 
Seattle, Washington. In order to continue his education, Henry 
Blackstone found it necessary to work after school hours. He mo-wed 
lawns, sold papers, worked in a soda fountain, and did any other kind 
of odd job that came along. 

The long hours of work did not, however, prevent him from being 
a good student. He was among the top ten in his high school grad- 
uating class and won a scholarship to the Massachusetts Institute of 

Technology. 

At MIT, Henry Blackstone worked as a janitor and library clerk, 
but still managed to get straight A's in mathematics and physics. He 
received his Bachelor of Science degree in 1937 «"^ « ^^^'^'' ^^ 
Science degree in electrical engineering in 1938. 

The year 1938 was not a particularly good one for fledgling engi- 
neers and Henry Blackstone had trouble finding a job. He hitchhiked 
to California and knocked on the doors of power companies from San 
Francisco to San Diego, but they were not hiring anybody. Finally 
■when, as he puts it, "I was down to fifty cents and three oranges, he 
found a job as a laborer. 

In 1939, he and another engineer, Curtis Hillyer, went into business 
for themselves as electronics engineering consultants. They came up 
with an idea for a missile employing an infrared guidance system that 
would have the ability to guide itself to a target. Their letters to U est 

Photo by Sanderson 



200 



Coast aircraft manufacturers drew little attention, but in 1943, Sher- 
man Fairchild of Fairchild Engine & Airplane Corporation invited the 
two young men to join his firm. Henry Blackstone was placed in charge 
of Fairchild's electromechanical engineering laboratory and appointed 
to the National Defense Research Council. 

At the end of the war he left Fairchild and founded Servo Corpora- 
tion with a total capital of $10,000 and three employees. The com- 
pany's first factory was a converted dance hall, but today its 400 
employees work in a $iV2 million building that was completed only 
last year. 

Mr. Blackstone has worked on the Atlas, Titan, Sparrow, Matador, 
and other missiles. Fie also has patents pending on some eighteen 
electronics inventions. 

In spite of a long and sometimes bitter struggle to make his company 
successful, Mr. Blackstone has found time to participate in civic, man- 
agement, and public service activities. He is a charter member, direc- 
tor, and vice president of the Young Presidents' Organization; a trustee 
of Adelphi College; administrative vice chairman of the Small Busi- 
ness Administration; and is active in local government and the Oyster 
Bay High School PTA. 

Mr. Blackstone is married, has four children, and resides in Laurel 
Hollow, Long Island, New York. 

April, i960 



CHAPTER 8 

Gathering Information 



The management o£ a business depends primarily upon the availability 
and use o£ facts. The day is rapidly passing when the chief executive 
can run his operations by intuition, or the "seat of his pants." Com- 
petition is becoming more intense and efficient, costs are rising, customers 
are more exacting. Although a few lucky entrepeneurs may squeak by 
playing their hunches, the graveyard is full of those who did not succeed. 
Information is the basis for making business decisions. It must be 
adequate to cover the subject and accurate for reliability. This chapter 
will discuss how the chief executive goes about gathering factual informa- 
tion on which to base his plans, attain his objectives, and measure the 
results. 

201 



9Q9 MANAGEMENT BY OBJECTIVES 

The most successful chief executives are usually the best informed. To 
operate a business successfully, much vital information must flow to the 
president from within the business-a constant stream or upfiow of 
valuable data. Furthermore, quantities of information are essential from 
outside the company, which constitute a steady inflow. Although it is 
most desirable that all information be obtained in a form which is 
quickly and effectively useful, this cannot always be done. The very nature 
of some of the most vital facts is such that they can be obtained onlv 
through arduous and sometimes time-wasting methods. 

The personal views and philosophies of one chief executive are set 
forth in this chapter. They have yielded a reasonably successful operation 
for over a decade. Nonetheless, they are today far from complete and not 
as yet finally satisfactory. They are and probably always will be themselves 
in a constant state of change, improvement, and development. Further- 
more, since they are personal and apply only to one chief executive and 
one corporation, they may not necessarily be satisfactory to other com- 
binations of business and man. 

On August 1, 1946, I put down my electrical-engineering slide rule and 
assumed the position of president of the corporation of which I was 
the only employee. In 1959, that corporation had over four hundred 
employees and did $7,000,000 in sales, and I was still the principal execu- 
tive officer. Starting from scratch and building to its present size created 
unusual and intense needs for information and an excessive thirst for 
knowledge and experience. Considering my abysmal lack of knowledge 
and experience in business management in the early days, it is a wonder 
that the corporation survived at all. It grew, however, and as time passed, 
I began to feel qualified for the job. 

INFORMATION THEORY 

Reliable information is required for every step in the managing 
process. First, it is used to establish objectives. Second, it is used to 
direct the attainment of these objectives. Third, to complete the cycle, 
it is used to measure the results. 

In order for plans and objectives not to be idle dreams, they must be 
based on factual information. The forecast of sales volume must be 
predicated on the purchasing power of the customer as well as the useful- 
ness of the product to him. Projected profit levels must be based on a 
forecasted sales volume and on actual experience in the cost of operations. 
Profits are also affected by a knowledge of the total market potential 
which must be obtained in order to set adequate prices. Only by obtain- 
ing the necessary information in sufficient accuracy and proper detail 
can sound objectives be established. 



GATHERING INFORMATION 203 

The second step in the managing process is the attainment of these 
objectives. To direct successfully the attainment of objectives, the chief 
executive must have information about controlling conditions, the 
available resources and equipment, the necessary manpower level and 
staffing, and all the significant problems and obstacles which stand in the 
way of attainment. The right quantity and the right kind of information 
must flow to the chief executive if he is to perform his function success- 
fully. 

The third step in the managing process is the measurement of results. 
In the development of a business enterprise, it is constantly necessary to 
correct deficiencies and weaknesses and to improve procedures and opera- 
tions. A major principle is that good performance must be rewarded 
and poor performance must be corrected. There is no way to measure 
performance or to appraise results without adequate and accurate infor- 
mation. 

Business Is Like an Organic Creature 

A business enterprise can be validly likened to an organic creature 
quite similar to a human being. The hands and muscles and limbs are 
analogous to the production mechanisms of an enterprise. The brain is 
analogous to the management. There must be a constant flow of informa- 
tion between the brain and the muscles. The network of thousands 
of nerves are the channels through which the information must flow. In 
a human body, the information takes the form of millions of electrical 
impulses between the brain and each muscle. The senses are constantly 
gathering information and transmitting it to the brain. The brain 
instantly processes the information, analyzes it, and converts it into plans 
for action. These plans are transmitted as electrical "bits" down the 
nerve channels, and the desired action results. 

In the organic structure of the corporation, there must be many senses 
and sensors constantly gathering millions of bits of information. This 
information is transmitted to the management to perform the brain 
function of processing, analyzing, and programming. Impulses are sent to 
the productive organs of the enterprise to initiate the desired action. 
There are millions of bits of information constantly flowing into the 
management of the corporation, resulting in myriads of orders and direc- 
tions to people, to departments, and to divisions. Thus we see that 
information is the working fluid which traverses the nerve network of the 
enterprise and relates the plans of management. 

The Chief Executive Must Be a Generalist 

In the field of top management, the responsibility of the chief executive 
calls for the attributes of a generalist. His job in managing a business 



9Q4 MANAGEMENT BY OBJECTIVES 

enterprise can be likened to the task o£ a painter who starts work on a 
portrait or landscape. Within his area of endeavor, the painter tends to be 
a generalist. He cannot start in one corner of the canvas and work his 
way across to the other side of the canvas and thus complete his painting. 
Nor can he start with any particular object in his scene and complete it 
so that by an orderly sequence of such tasks he fills the entire canvas. 
Instead, he must actually paint the entire picture simultaneously. He 
must build up the whole background over the entire canvas while at 
the same time spotting and roughing in the objects. He must visualize 
the colors in their respective areas in such a manner as to anticipate the 
desired end result. 

Thus the entire picture must take shape and form in a single evolu- 
tionary process, and the painter, as a generalist, must have a generalized 
mental concept of what he hopes to end up with as to colors, shades, 
forms, composition, and action. Needless to say, if the end product 
does not possess the many nuances of authenticity, aesthetic balance, and 
integrity, it will not sell well in the market place. 

In the generalist field of top management, the function, the effort, and 
the accomplishment are quite analogous to those of the painter. A manu- 
facturing enterprise is an organic, homogeneous entity. Many presidents 
perform the functions of a sales manager or a production manager. This 
does not mean that they are soundly performing the function of the chief 
executive officer, because there can be only one definition of that respon- 
sibility, and it must be in terms of a generalist. The president, therefore, 
cannot dig too deeply into information and data. It is more important 
that his attention be uniformly strong across the whole management 
spectrum. 

The most valuable asset I have had in running a business is the fact 
that my aptitudes and interests were originally those of a generalist 
rather than a specialist. Even though I studied electrical engineering, I 
started drifting out of its practice almost at the beginning of my profes- 
sional career. How this happens to a person I cannot say. In mv oan-u 
case, it stemmed from a wide-ranging interest and an umdllingness 
initially to dig too deeply into any one field. Thus, although majoring 
in electrical engineering, I could not resist taking four years of French 
and six years of German-obviously going beyond the language require- 
ment of any engineering course. Both of these languages lay dormant 
for a period of twenty years with no apparent usefulness. Then, suddenlv, 
business requirements took me to Europe, and there, much to my surprise, 
I had to deal with many businessmen in Germany and France who could 
not speak a word of English. This was not idle social chatter. AVe had to 
develop binding legal commitments. 

Similarly, on my first job as a trainee in a large corporation, I was 



GATHERING INFORMATION 



205 



temporarily placed in the production methods department. Prior to that 
time I knew nothing about the subject, and I did not use what I learned 
until many years thereafter. In recent years, however, as chief executive 
of my company, this information has stood me in good stead in better 
understanding and coping with the problems of our production organiza- 
tion. 

But wide interests and information gathered carelessly and disin- 
terestedly can sometimes backfire. During my college career, I failed two 
semesters of economics, thinking of course that this was a useless burden 
on a student of electrical engineering. Some years later, in trying to start 
a business, I found myself woefully lacking in the necessary knowledge of 
accounting practices and corporate finance. 

Problems of Information Gathering 

The fact that the president must, of necessity, be a generalist has a 
bearing on the information which he seeks, the information which he 
receives, and the manner in which he uses the information. To become a 
good generalist one must have wide interests, an unusual aptitude for 
observation, and an ability to separate the kernels from the chaff. In our 
modern world of printing and data processing, there is a freight-car 
load of chaff for each single kernel of valuable and usable information. 
The chief executive must have a highly developed fast-sorting and weigh- 
ing faculty to bypass the tons of chaff. He must have a conceptual and 
linking capability to perceive and visualize the association of ideas which 
interrelate data and information into a clear and distinct pattern. One 
happy pay-off for the generalist is that eventually the islands of data 
and information begin to fit together to form new continents of broad 
patterns and basic philosophies. 

There are, however, dangers and pitfalls in the life of the generalist if 
he is going to get any useful work done. He must process large volumes 
of information. In so doing, there is a constant tendency, if not pressure, 
to bog down in great quantities of detail. The amount of printed matter 
available in the business world today is overwhelming. The numbers of 
important, useful, and valuable journals, brochures, and books are 
almost unlimited. Ordinary conscientiousness subjected to this vast array 
of useful information is constantly threatened with overload. Worst of 
all, the more competent the generalist the more difficult he finds it to 
reject, skip, and scan seemingly vital information. The requirement for 
constantly separating the wheat from the chaff must at all times be over- 
riding. This inevitably results in conflict with most other principles 
and requirements of management. 

Skill in Listening Is Required. Basic to the concept of information gather- 
ing are the skills related to the assimilation, analysis, and use of informa- 



2QQ MANAGEMENT BY OB JECTI\ ES 

tion. Although the functions and the objectives of a corporation clearly 
prescribe the job of the chief executive and the management, the corpora- 
tion has no alternative but to deal with people. People being human, even 
though managers, follow certain patterns in their information gathering. 

At a seminar I attended at Harvard University, Professor Hower gave a 
fine dissertation on the art of listening. Although he was referring to its 
part in the process of learning, I believe it is directlv applicable to the 
process of information gathering. Similar thoughts have been expressed 
by Professor Arnold at Stanford University in his course on creativitv. 
The gist of these men's comments is that hearing is not listening. ^Vhat 
we comprehend from what ^ve hear is by no means a replica of ^vhat the 
information source wishes us to understand. 

Some of the obstacles to undistorted listening (or reading) can be called 
psychological blocks. These blocks may be based on a subconscious fear 
of a subject which is distasteful to us personally. Such fears can, at times, 
be so strong that the person does not even see or hear a message relating 

to the subject. 

Our prejudices are in themselves a block to listening and comprehen- 
sion and can deafen us or blind us to certain areas of real factual 
information. AVhere areas are overshadowed bv long-inured thought 
prejudices, the nongeneralist type of manager (and in spite of the require- 
ment for true generalists in top management jobs, there exist in industrv 
many managers who remain narrow specialists throughout their business 
careers) is limited in listening and reading ability. The production man 
who becomes president, but remains basicallv a production man. is msen- 
sitive to the importuning of engineers or of sales people. His channel 
vision, through a lifetime of practice, has been so highlv developed that 
all other sensors or neurons have long since been blunted or atrophied. 
Motivational forces can strongly bias or influence actual listening or 
comprehension. I have had the difficult experience of trving to set up 
liberal incentives for outstanding performance, such as a stock-option 
plan or a sales commission. At times this has been done unwiselv and 
with disastrous results. ^Vhere strong incentives are not fullv consistent 
with corporate objectives, a manager's attentions and efforts mav be 
forced, almost unwittingly, in directions which are adverse to the basic 
corporate policy. He may, then, hear instructions in a manner which is 
biased toward the fulfillment of his own particular incentive plan. ^\ e 
see therefore, that the comprehension and deductions dra^vn from 
information received can be seriously at variance .dth the true original 
information, depending upon the factors affecting the listening process. 
Reading Must Be Modulated. Of all the skills directly related to intorma- 
tion gathering, the most important one is the art of reading. Unfor- 
tunately for myself, academic understanding and formal training m 



GATHERING INFORMATION 207 

reading took place only in the past ten or fifteen years. This is a skill 
which should receive increasing attention. The basic problem in infor- 
mation gathering is to find the one grain of wheat in a boxcar full of 
chaff. To do this without wasting a lifetime, one must have a means 
of rapidly processing large volumes of chaff. This is not, however, an 
exact analogy, because for proper information gathering related to 
business management, one has to look for shades, nuances, and many 
types and kinds of information. 

Each kind of information requires a different intensity level of atten- 
tion, a different need for retention, and a different degree of detail in 
comprehension. Rapid reading is, of course, a very important require- 
ment. Since the information mix varies in all degrees just as the product 
mix in a business or industry, what is really needed is a highly fluid and 
flexible capacity for change of pace and depth in reading. More descrip- 
tively, this could be called modulated reading, which implies several rates 
of scanning, reading, and concentrated studying. 

The mechanics of written language is a major deterrent to information 
gathering. English is far from a complete means of communication. Worse 
than this, however, it seems to me that our school systems and colleges 
have grossly neglected training in the English language. It is regrettable 
that students can graduate from college who cannot adequately express 
themselves in writing in their mother tongue. A good part of this problem 
arises, of course, from the lack of training in composition and organiza- 
tion. Today's business and industry require endless brochures and reports. 
The readability and understandability of these reports can be seriously 
impaired by the author's lack of clear thinking and a sense of organization 
in presenting the material. 

Emphasis on Meetings Requires the Ability to Speak. Of increasing im- 
portance to information gathering and dissemination is the conference or 
meeting. Here the medium of exchange is speech, either formally or 
informally presented. I find it a sad fact that many brilliant and well- 
educated people have all sorts of problems speaking up around a meeting 
table and, of course, in giving a talk before an audience. Some become 
totally paralyzed. The mechanical problem itself is as great as the psycho- 
logical factor. The shy person cannot raise his voice loud enough to be 
heard at the other end of the table, or he cannot get a word in edgewise, 
or when speaking he may mumble or stumble so badly that no one 
can understand him. Unfortunately, much valuable information is locked 
up in the heads of people who are shy or are careless and untrained in 
the mechanics of speech and language. 

If a committee is appointed to perform certain tasks either on a con- 
tinuing basis or on a single-task basis, it no doubt will do a good deal 
of its work in a series of conferences. Likewise, in any business, confer- 



208 MANAGEMENT BY OBJECTIVES 

ences or meetings are held on a regular basis for specific managing groups 
or interdepartmental groups as a means of carrying on the continuing 
function of management. Therefore the committee and the conference are 
most significant techniques in the generation and dissemination of infor- 
mation. 

The principles of meetings and conferences are presently being studied 
by a great many business research and academic groups, and certain 
fundamental and valuable concepts are being developed. An illuminating 
study on conducting management meetings, which was produced by the 
Young Presidents' Organization, is contained in this Handbook.'^ 

Information Must Be Timely. A final skill related to information gather- 
ing is a sense of timing. One of the questions that I, as author of this 
chapter, was charged with answering was: What kind of information is 
of no value to the chief executive? Broadly speaking, this question is 
answered by the two ways in which timing enters into the picture. The 
first has to do with the fact that the chief executive has little time to 
read or absorb the facts. Therefore the kind of information ^vhich is of 
little value to him is that which is buried in a voluminous mountain of 
words. The only kind of information that is of ??o value to the chief 
executive is information which is too late. Much priceless information in 
business is like a delicate orchid having a limited life span. ^Vhen it is 
too little or too late, it is worse than useless. 

The Chief Executive Is a Human Computer 

The president of a corporation does not operate a lathe, and hence he 
is not part of a servo-control loop of man and machine. He is not a book- 
keeper and hence is not a manual extension of an accounting machine. 
Nor is he a designer who draws patterns on pieces of paper from which 
models can be cut out of metal. In short, there is very little that is clear, 
specific, or tangible in his job description. Management is still somewhat 
of an art, and the president is akin to the artist who must create concepts 
and patterns out of ideas. For purposes of discussing concepts of informa- 
tion gathering, it is useful to view the president as a human computer. A 
computer is a device which receives inputs in the form of information. 
It has a storage function which can store the information in manv differ- 
ent groupings for later use. It then has to process the information, looking 
for the answers which it was designed to find. As it finds the ans^vers. it 
stores them and arranges them in a preselected program for use. Lastly, the 
computer has outputs in the form of the answers which it has found, 
or in the form of combinations of the answers with the original input 
information or parts thereof. 

The president of the corporation, even though human, goes through 

1 John D. Foskett, Chap. 45, Conducting Management Meetings. 



GATHERING INFORMATION 



209 



nearly an exactly analogous series of functions and steps. He receives 
information of all sorts relative to the operations and objectives of the 
business. Much of this information he stores for fixed periods, or in- 
definitely, while some of it must be used immediately in computing the 
answers which operating people need. Over varying lengths of time, the 
president's brain is processing the information— different parts of it in 
different ways. When his processing function is completed, the president- 
computer arrives at definite answers or tentative conclusions. The definite 
answers can then be applied directly to programming the enterprise; 
that is, decisions are made and instructions are given. The tentative 
conclusions can be reinserted as inputs to the computer or stored until 
further specific information is obtained. The programming of the enter- 
prise is accomplished by the output of the computer. These outputs 
generally take the form of written or verbal decisions or instructions to 
the activity areas of the company, that is, the operating parts of the 
machine. 

The difference between the president or chief executive and an elec- 
tronic computer is that the president carries with him the ability to 
program his own internal computer. There is one remaining difference 
between the chief executive and the computer that may ensure the chief 
executive keeping his job for a few more years. This is his ability 
simultaneously to get together his own data or information to compute 
many different problems at the same time and to operate more or less 24 
hours of each day (whether he likes it or not), accepting constantly 
changing inputs and constantly coming up with new answers. This 
particular computer may be operating quite well, even when one small 
drawer in the lower left-hand corner is driving an automobile through 
congested traffic, or when a drawer in the upper right-hand corner is 
playing bridge with its wife and two friends. 

Thus the president must receive and consume great quantities of data 
or information bits. He must sort, screen, and winnow out the chaff from 
the grain. He must process the grain and grind out answers and decisions 
constantly. The greatest single disadvantage he has, which the electronic 
computer does not, is that he cannot insert standard, proved test prob- 
lems to check whether the answers are always coming out exactly correct. 
Unfortunately, because he is constantly solving different problems, no 
two of which are alike, there is no way of checking the accuracy of his 
computing function. 

An Information-gathering Center. Figure 8-1 is a graphical representation 
of the president of a manufacturing enterprise performing the function 
of a computer center. It shows the information flow between the president 
and four major information sources. 

The block shown at the bottom of the diagram represents the managers 



22 Q MANAGEMENT BY OBJECTIVES 

of the activity areas of the enterprise. They, of course, constitute the 
president's main source of information from within the company. The 
blocks at the top and at either side of the diagram indicate the major 
sources of information flowing into the enterprise from organizations and 
groups that have a direct relationship to it. The inflow of information 
to the president is equally voluminous from many other external sources 
that have no direct relationship to the corporation. Needless to say, the 
president, as the data central in this complex system, must reprocess 



stockholders 







— I 1 1 1 ' 1 ' • 

Directors 












o 

c 
o 

o ■ - 

'^ E 

< 








CD 

c 

ftl 01 

cp O 
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President 










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MANAGEMENT 
of 








Operating Enterprise 







t t i t i t 1 t t 



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m e r s 



3 



Fig. 8-1. The president as a computer and information central. 

and retransmit all this information in different forms and different direc- 
tions to any of the sources from whence it comes. 

A more detailed representation of the president as an mformation 
central is shown in Figure 8-2. . , r 

Each member of the board of directors has a call on the president tor 
direct communication and information flow. This is as it should be if 
the president is going to be responsive to their direction. In anv corpora- 
tion there can be a number of associated business services. In my expeii- 
ence these relationships have been close and valuable, especially m the 
growth and operation of a smaller business. The association is as close to 



GATHERING INFORMATION 



211 



being a part of the corporate structure as it is possible in general to 
achieve with outside organizations not directly under the control of the 
corporation. Obviously the lines from each of these agencies to the 
president are not organizational lines requiring direction and supervision. 
Even in the most completely delegated top management structure, how- 
ever, they are lines of communication and information flow which are 
vital to the president's performance of his duties. The working levels of 
each of these organizations are indeed in considerable contact with the 
working levels of the company itself. 

BOARD OF DIRECTORS 



AMA a SAM 
Managemen 
Associations 



Bank 



Auditors 




Committee 
for Economic 
Development 

Corporate 
Directorships 

College 
Trusteeship 



Research Produc- Sales Finance txternal Person- Legal and 
and tion and Relations nel Secretarial 

Development Control 

COMPANY MANAGEMENT 



Fig. 8-2. Detailed representation of the chief executive's sources of information. 



The group of professional activities shown on the left of the diagram 
is a representative selection of organizations. These are highly important 
educational and informational services and ties which the president 
usually has established. Although they have no financial or legal relation- 
ship to the corporation, they are related to business-management concepts 
and professional people, and they constitute a most highly valued source 
of objective counsel and professional training. The company management 
as represented by each of the managers of activity areas usually found in 
the manufacturing enterprise has many close ties with the president. The 
manager of each activity must see to it that the necessary data and 
information are generated within his activity area which should be di- 



oio MANAGEMENT BY OBJECTIVES 

reeled toward the president. In turn, he must see to it that special data 
and information are extracted from his activity area which are specifically 
requested by the president. Thus the lines connecting the president to 
the managers of each activity area represent a considerable flow of vital 
operating data relating to the success and performance of the business. 
Figure 8-2 shows only the directly associated groups. There are, of 
course, great numbers of other media, organs, agencies, societies, publica- 
tions, and trade associations which generate almost limitless quantities 
of significant information and data from which the president can draw. 
His greatest problem is the selection and evaluation of these sources and 
the condensation of the facts into usable form so that they can be 
absorbed in the limited time which he has available. 

BASIC FORMS AND TYPES OF INFORMATION 

Business information breaks down into two broad categories, "general 
information" and "particular information." Particular information is 
the working tool of the scientist, lawyer, or specialist. General informa- 
tion or knowledge is the resource of the manager or businessman. These 
categories pertain on the one hand to the professional-specialist and on 
the other to the manager-generalist. The extreme of this separation has 
given rise to the witticism that "the specialist knows everything about 
nothing, and the generalist knows nothing about everything." 

As I have mentioned before, information comes to the president from 
two basic souYces-iipfloiv from within the company and infloic from 
outside of the organization. The president is primarily concerned with 
general information, highlighted by such specific information as he mav 
need from time to time to comprehend a particular problem. But he will 
be wise to rely upon his managers and specialists to predigest particular 
information for him and to give it to him in capsule form with then- 
comments on its significance. If he gets bogged down in trying to pene- 
trate too much technical detail, he "won't see the forest for the trees. 

The forms of information used by company presidents are infinite. 
They will vary from company to company according to the size and the 
nature of the business. They encompass (1) financial reports, (2) operating 
reports, (3) meetings, (4) outside business services, (5) trade news, and (b) 
economic and political news. It is beyond the scope of this chapter to 
discuss these in detail. I will, however, mention and comment brieflv 
on the forms which have been most useful to me. 

Upfloiv Information 

Table 8-1 shows the types of reports and other information that should 
be received directly or indirectly from internal sources by the chief execu- 















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St of purchasi 
nual budget 
nual forecast 
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213 



214 MANAGEMENT BY OBJECTIVES 

tive of the typical manufacturing company. It should be noted that the 
frequency with which they are received is indicated in the table. 

Financial Reports. The most conventional information gathered by the 
president of a business consists of the financial statements, principally 
the balance sheet and the profit and loss or income statement. These 
statements are prepared on a monthly, quarterly, or annual basis, depend- 
ing on the requirements of the business. The actual amount and kinds of 
information presented by or obtainable from financial statements can 
vary almost without limit from corporation to corporation. It is common 
to find that financial statements prepared for internal operating purposes 
differ from those that are published in a public document. They may 
contain more or less information and detail, depending on the uses and 
needs of the company. 

In Servo Corporation, the financial statements prepared monthly for 
operating purposes contain more information than the published 
quarterly or annual reports. In addition to the information normally 
found on such statements, we include forecasted figures for the period, 
variances from forecast, figures for the similar period of the prior year, 
and variances from the current period. By combining these various 
figures with the financial statements as an internal operating report, a 
value is gained which otherwise would not be available even though 
almost as much expense and time would be required to prepare them. 

Examples of the form of the financial statements used at Servo Corpora- 
tion for internal operating purposes are shown in Figures 8-3 and 8-4. 

Some presidents try to run their businesses on the basis of the con- 
ventional statements alone. Experience shows that these statements have 
evolved over a period of many years, created largely by forces external 
to the operations of the corporation, such as the requirements of the 
banking institution from ^vhich funds are borro^v'ed, or more importantly 
the requirements of the Internal Revenue Bureau. Some are derived from 
the requirements of the investment world in explaining and analvzing 
corporate performance with a view to the sale of securities. It is interest- 
ing to note that none of these uses has any particular bearing upon 
the needs of operating management in controlling and directing the at- 
tainment of the corporation's objectives or in the measurement of the 
results of operations. 

Lord Kelvin said, "When you can measure a thing, you begin to knots' 
something about it." This is as true of the condition of a business enter- 
prise as it is of the physical sciences. The financial statements of a 
corporation are widely used for this purpose. Unfortunately, thev are no 
more suited to this purpose than they are to the purpose of controlling 
and directing the attainment of the objectives. It is true that financial 
statements, if properly prepared, should tell a great deal about the busi- 



GATHERING INFORMATION 



215 



X.Y.Z., INCORPORATED, AND SUBSIDIARY 
Comparative Consolidated Balance Sheet 

(In thousands) 



Item 



Current assets: 

Cash on hand and in banks .... 

Accounts receivable 

Inventories 

Other 

Total 

Current liabilities: 

Notes payable— banks 

Accounts payable 

Accrued expenses 

Reserve for taxes on income .... 
Total 

Net current assets 

Machinery and equipment, at cost 
Less accumulated depreciation 

and amortization 

Total— net 

Deferred charges 

Long-term debt 

Total net assets 

Shareholders' equity: 

Common stock, $1 par value, 
authorized 1,500,000 shares, 
issued and outstanding, 945,- 
000 end of 1958, 905,000 end of 
1957 

Capital surplus 

Earned surplus 



Current period 



Actual 



$ 320 

1,375 

2,960 

110 

$4,765 



$ 750 
760 
300 
850 

$2,660 



$2,105 

$1,940 

815 
$1,125 

$ 50 



$3,280 



$ 945 

860 

1 ,475 

$3,280 



Forecast 



$ 320 

1,290 

2,700 

90 

$4,400 



$ 580 
675 
270 

775 
$2,300 



$2,100 

$1,725 

725 
$1,000 



50 



.S3, 150 



$ 945 

860 

1 ,345 

.$3,150 



Variance 

froin 
forecast 



85 

260 

20 



36^ 



$ 170 
85 
30 
75 

$ 360 



$ 5 
$ 215 

90 

$ 125 



$ 130 



S 130 
S 1 30 



Similar 

period 

prior year 



$ 455 

1,525 

2,500 

100 

.$4,580 



$1,050 
800 
300 
425 

.$2,575 

.$2,005 
$1,050 

475 

$ 575 

$ 100 

650 

$2,030 



$ 905 
660 
465 

82.030 



Variance 

from 
current 
period 



$ (135) 

(150) 

460 

10 

$ 185 



(300) 
(40) 

425 



$ 85 



$ 100 
890 
340 



550 



$ ( 50) 
(650) 



$1,250 



; 40 

200 

1,010 



S 1 .250 



Fig. 8-3. Example of a monthly balance sheet used for operating purposes. 



215 MANAGEMENT BY OBJECTIVES 

ness. It should be remembered, however, that they are instantaneous pho- 
tographs of the financial condition of the enterprise. There is nothing 
dynamic about the statements, and therefore they tell you nothing of the 
dynamic picture within the corporation. 



X.Y.Z., INCORPORATED, AND SUBSIDIARY 

Comparative Statement of Consolidated Profit & Loss 
(In thousands) 



Item 



Sales 

Cost of sales 
Gross profit 



Otlier operating costs: 

General and administrative ex- 
pense 

Marketing expense 

Research and development 

Total 



Operating profit 
Interest expense 



Current period 



Actual 



$12,000 
7.630 



4,370 



$ 430 

1,100 

500 



$ 2,030 



Net profit before provision for taxes 
on income 

Provision for taxes on income 

Net profit for the period 



2,340 
45 



Forecast 



$10,000 
6,170 



2,295 
1.285 



$ 1,010 



$ 3,830 



$ 400 

1,000 

400 

$ 1,800 



$ 2,030 
35 



— I Similar 
Variance | period 

from prior vear 
forecast 



Variance 

from 
current 
period 



$ 1,995 
1,115 

$ 880 



S2,000 

1,460 

S 540 



S 30 
100 
100 

$ 230 

S 310 
10 

S 300 

170 

S 130 



88,000 

4,950 

S3,050 



S 350 
800 
300 

SI. 450 



SI, 600 

30 

81,570 

875 

S 695 



84,000 

2.680 

81,320 



S 80 
300 
200 

8 580 

8 740 
15 



410 



S31i 



Fig. 8-4. Example of a monthly profit and loss statement used for operating purposes. 

If we are to measure the performance of the enterprise (and therebv 
the performance of its managers and department heads), we need manv 
different kinds of information suited particularly to this use. Admittedly, 
it is difficult to develop quantitative figures and reports concerning some 
of the activity areas of the business. This is so because much of the 
activity is of an indirect overhead or administration nature. Nonetheless, 
it is possible to make substantial progress in these areas in a quantitative 
manner. I am more convinced as the years go by that the administrative 



GATHERING INFORMATION ^^' 

overhead factors of business expense will lend themselves to exact 
quantitative measurement and appraisal at least as well as present cost- 
accounting practices with regard to direct labor and materials. 

Operating Reports. As I've already mentioned, conventional financial 
statements do not provide the kind of information needed to achieve 
the optimum operations of an enterprise. A second group of reports, 
which might be called operating-control reports, are necessary. These re- 
ports must provide information on all the activity areas of the business. 

The managing process starts with establishing corporate objectives. 
The tangible statement of these objectives takes the form for the current 
year of the annual budget and forecast. The annual budget and forecast 
comprise the major operating controls which assist the president m 
directing the attainment of objectives which have been set for the corpora- 
tion operation during the year. The annual budget and forecast are de- 
rived from detailed estimates and forecasts of plans developed by and 
within each activity area. These estimates and forecasts are transmitted to 
the finance and control activity, where they are processed into consistent 
figures usable as control data. Prior to publication, they are analyzed in 
terms of past-experience figures and compared with basic corporate 
policies and objectives as defined by the president. They are put into 
final shape as a control against which to measure during the coming year. 
Each department or activity area in the company has its own burden 
center, against which are budgeted for the year ahead all operating- 
expense items included in the overhead and the direct-labor categories. 
Sales volume is forecast, manpower requirements are indicated, and 
figures are developed for necessary additions to capital-equipment fa- 
cilities. 

In Servo Corporation, we have endeavored to convert all these operat- 
ing-control reports into graphic form. A frequently used chart shows 
monthly cumulative costs both as a dotted-line projection of the forecast 
for the entire year and as a solid inked-in line representing actual figures 
for the year to date. This chart gives at a glance a great amount of 
information about the performance of a particular activity area, depart- 
ment, or burden center. Charts of this type glaringly point up adverse 
trends and clearly highlight serious discrepancies. This permits practicing 
the principle of management by differences. 

Each activity area of the business should be analyzed, and important 
ratios and figures developed. The cost of selling per sale and the cost 
of selling per dollar of sales are important figures which can be developed. 
They are meaningful to the manager of the sales activity as well as to the 
chief executive. Similar ratios can be developed for all the other activity 
areas. In the area of personnel management, which might seem one of the 
vaguest and nonquantitative activities, valuable analytical data can be 



218 MANAGEMENT BY OBJECTIVES 

developed. One standard report is the turnover figure on a cumulative 
basis throughout the year in comparison with similar reports for the four 
or five preceding years. It is also possible to compute the cost of hiring per 
person hired. Information of this type is indicative of the performance 
of both the personnel activity area and also of the business and manage- 
ment as a whole. It is logical to extend these turnover and cost reports 
and figures into each department of the company on a departmental 
basis. Much useful information can show up here revealing the interests 
and aptitudes of different department heads and managers. 

As with any tool, however, cost information can be used safely or it can 
be used carelessly and dangerously. Due respect must always be given 
to inherent differences between the different activity areas, as for example 
between a production activity with many employees at a lower average 
wage and an engineering activity with fewer employees at a rather high 
wage. Again, no amount of information or reports can eliminate the 
necessity for clear analytical thinking and sound deductions and con- 
clusions. Different people, including executives, can and will drags' dif- 
ferent inferences from the same set of figures. 

The chief executive should receive a narrative type of report in addi- 
tion to numerical and statistical reports. This report should describe 
concisely in words on a monthly, quarterly, and yearly basis the over-all 
picture within the activity area. It should outline the problems ^vhich 
have been encountered and solved during the period. It should spell out 
the accomplishments of the activity area, whether they be in shipments. 
in orders booked, or in projects completed. It should describe any serious 
problem existing and standing in the way of future performance. 

The chief executive requires complete quantitative reports of the opera- 
tions within each activity area as well as a concise narrative summarv 
prepared by the activity area outlining its goals, its performance, and its 
achievements. This is a substantial upflo^v of information, the substance 
of which it is essential for the chief executive to have to do an adequate 
job. The extent to which this information is burdensome is not deter- 
mined by the numbers or quantities involved, but ^vill be determined 
by the relative obscurity or clarity of the analyses and the presentation 
of charts. This is an area of business operations in which I believe there 
is room for considerable advancement in techniques. The statistical quan- 
tification of a business is not fundamentally different from the statistical 
quantification of scientific or engineering phenomena. Yet the techniques 
of presentation of data common to the business world are crude and 
inadequate when compared with the methods of presentation of informa- 
tion in the scientific world. I am not speaking here solelv of the presenta- 
tion of numbers, digits, charts, and tables, nor am I referring to applying 
"scientific concepts" to the performance of management. 



GATHERING INFORMATION 



219 



Feedback Completes the Information Circuit 

There are some things which the chief executive can do, or perhaps 
should do, to close the loop in the managing process. Modern electronic 
industry is based on the so-called "closed-loop" concept of automatic 
control. The analogy between an electronic system and the management 
of a business enterprise is almost exact. The electronic system is a vast 
array of interconnected nerve lines and control centers through which 
countless bits of information pass with the speed of light. Modern 
management likewise channels and processes vast and varied quantities 
of information to make decisions and to take action. 

At this point I am referring more to those matters that constitute the art 
of management than the application of mathematical principles of 
financial and cost control. A business in its simplest form is a combination 
of a machine, a system, and a man. To succeed, the machine must be 
well designed, efficient, and sufficiently accurate to meet the requirements 
of the product. To succeed, the business must have a system which is 
adequate and capable of achieving the goals of its management. This 
system can be thought of as a combination of the organizational structure 
of the enterprise together with its financial capitalization and resources. 
But to succeed, it must also have people to supply the labor, the profes- 
sional and engineering skills, and the necessary managerial and super- 
visory acumen to conduct efficient operations. The people in the business 
must be qualified and competent. In recent years, much has been said to 
the efi:ect that these people must also have sufficient motivation. They 
must be interested; they must be happy; they must achieve personal 
satisfactions beyond the monetary compensations of wages and salaries. 
The successful enterprise might be described as a combination of 
machines, a system, and people, where the total combination exists in a 
climate of human respect and satisfaction. 

Because this climate is vital to the utilization of the machines and 
the efficiency of the system, it is well that the chief executive be ade- 
quately informed of its condition. I know of no operating business report 
that will give an adequate or reliable picture of these factors. What's 
more, in my philosophy of business management, this is a determination 
which the top executive should not delegate to any other manager. It is 
his responsibility to monitor these factors and conditions within the 
very department of the manager whom he might otherwise delegate to 
do the job. He should not, therefore, depend heavily on anyone other 
than himself to determine these conditions and to assure himself that his 
fundamental policies and philosophy are being supported. There is no 
such thing as a strong and competent manager who will think, act, and 
believe in exactly the same way as his chief. This would not be realistic 



220 MANAGEMENT BY OBJECTIVES 

or desirable. All people, including managers, supervisors, and department 
heads are prone to make mistakes and are influenced by their own ex- 
periences. These human factors are characteristic of competent, qualified 
people. The requirement exists for a system of informal nonmathematical 
information gathering in this area. 

Random Monitoring. The kind of informal nonmathematical informa- 
tion required by the chief executive can be obtained by a program of 
random monitoring. Such a procedure will, in addition to providing the 
chief executive with vitally needed information, apply a random control 
to an otherwise rigid and regulated system. To this procedure of random 
monitoring, I apply the automation terminology of "feed-back control." 

To carry the analogy to automation systems one step further, one 
might call this a "dither" function, the purpose of which is to gently 
shake or vibrate the whole system or enterprise to ensure that all condi- 
tions of static friction and sticking are eliminated. This random monitor- 
ing by the president of an otherwise highly regular and periodic flow 
of information can be of great value to the successful performance of his 
responsibilities. 

Feed-back-control management by random monitoring can be accom- 
plished by: 

1. Irregularly spaced and unexpected plant visits 

2. Sampling of vital documents processed in the operation 

3. Listening— to individuals and to operating groups 

There are those who say that the president of a corporation has no 
business traipsing around the plant. They say that ^vhen he takes an 
important customer through the factory he is doing so because he has 
the same human frailties that others have— he likes to "goof off" a little 
bit. This is perhaps largely true. In my judgment, ho^vever, it is important 
for the chief executive to visit every nook and cranny of the operations 
under his direction. 

One opportunity for the president to make plant visits presents itself 
when he must take important visitors through the plant. The fact that 
the president is taking a major customer through the plant in no way 
detracts from his ability to observe and watch over everything that is 
going on. Even though he must show a guest about the plant, he has a 
great deal of opportunity to pick up all types of information. Direct 
visual observation of the operation and activities going on in the business 
is a vital feed-back control on the over-all management of the corporation. 
It helps the president to select key points rapidly from the voluminous 
information which comes to him. In this way, the regular formal control 
reports that he receives become more vital and meaningful to him. 

The second system of feed-back management is monitoring bv sam- 
pling. The problem of top management is to let the operation proceed 



GATHERING INFORMATION 221 

without interfering while still maintaining the opportunity to review 
some of the evidence of performance. One solution to this problem is for 
the chief executive to review carbon copies of certain documents processed 
in the operation. Three vital documents amenable to this task of review 
are purchase orders, correspondence, and checks. By scanning these 
documents for an hour or so, he can add immeasurably to his "feel" for 
the over-all business operation and again correlate the information with 
his regular reports. 

It is a good thing at random and infrequent intervals for the president 
to ask the company bank to hold all canceled checks for a given month. 
These take but a few minutes to scan through and give him a different 
view of the operation of the business. It is particularly salutary for his 
psychological attitude in the performance of his job. There is nothing 
like the sight of large quantities of money being paid out to revitalize 
the president's realization that the many statistical reports represent cash 
dollars going out the door and that one way to increase profits is to 
reduce this outflow. The intent here has no bearing on spotting dis- 
honest operations or even inaccuracies. The sole purpose of this review 
is the psychological stimulus to the president and the embellishment of 
his "total picture" concept of the corporation which he is running. 

The third step in the feed-back management process is the job of listen- 
ing. There are many subjects of the business on which different members 
of the company, no matter at what level, may have vitally interesting or 
valuable ideas. There are risks here for the chief executive. He must not 
disrupt the smooth operations of his supervisory management. Although 
I have continually exposed myself to many of the employees of the 
company, I have never heard a subordinate undercut his boss or an 
employee criticize his associate. 

Feedback and communication are amplified through the individual 
interview. As an adjunct to the climate of satisfaction and achievement, 
it is necessary that the president be accessible to every employee if the 
conditions and circumstances warrant. Naturally, the larger the corpora- 
tion the less this is possible. The principle remains sound whether the 
employees are at manager level, middle management, or the supervisory 
foreman level. This policy would include the exit interview where a 
person might leave the company for no apparent cause. It may be un- 
pleasant, but it is the president's duty to be available at such times in an 
effort to determine whether unknown conditions or misunderstandings 
might prevail. 

A further application of listening to feed-back-control management is 
the practice of the chief executive, either as an invited guest or uninvited, 
to visit occasionally different management meetings. He must avoid by 
careful self-discipline being drawn into the meeting and participating in 



999 MANAGEMENT BY OBJECTIVES 

making decisions or letting the chairman dump the responsibility of 
the meeting in his lap. It is his purpose to perform only a listening func- 
tion and to observe the operation of the business, the operation of a 
portion of his management team, or the means by which ordinary operat- 
ing problems are resolved and decisions made. By observing and listening, 
he can add to his knowledge of abilities and qualifications of his team 
members and can round out information he has received in reports. 

Week of September 20, 19 __ 



MONDAY 


TUESDAY 


WEDNESDAY 


THURSDAY 


FRCAY 


Top management 
8:30AM-10:30AM 


Sales-Engineering 
8;30AM-I0:30AM 






Production- 
Engineering 
8:30AM-IO:30AM 










Standards- 
Engineering 
llAM-12 






Division managers 

luncheon 
I2-2PM (monthly) 






Activity area'^ 

Management 

2PM-4PM 


New products 

planning 
Sales-Engineering 
2PM-4PM (monthly) 




Bidding and pricing 
Sales-Finance- 

Production 
2PM-4PM 


Cost control 
Finance-Engineering- 
Production 
2PM-4PM 








Industry forum 
Dinner meeting 
7PM-IOPM(annual) 





Activity areas; 
Soles 

Engineering 
Production 



Finance 

Personnel 

Legal 8 Secretarial 

Fig. 8-5. Typical weeklv-meeting schedule. 



A helpful "tool" for the president is a schedule of meetings to be held 
throughout the company during the ^veek. A typical schedule is illustrated 
in Figure 8-5. This sho^vs when each meeting is to be held and the activitv 
areas involved. From this the president is able to select ^diat meetings he 
wishes to attend. It also shows him the activity of his organization in the 
group approach to operations. 

Chief Executive Needs a Firsthand ''Feel" of Operations. The feed-back 
principle of management is intended to give the chief executive a first- 
hand "feel" of the climate and condition of the enterprise. This repre- 
sents information which he must gather himself by direct observation and 



GATHERING INFORMATION 223 

experience. It is essential and most valuable to give him the over-all 
climate of the organization and to point up opportunities for improve- 
ment, rewards, or commendation. If, as some say, chief executives practice 
personal observation primarily because of the enjoyment they receive, 
then I am guilty. In a direct observation of the condition of the business, 
the president can obtain one of the greatest pleasures in the fulfillment 
of his responsibilities. It is therefore valuable as a management informa- 
tion-gathering tool and desirable as a healthy enjoyment of one's work 
that the president keep himself informed by frequently seeing the whole 
working enterprise. In this manner, all the blocks and parts are fitted 
together into the integrated whole of the business. 

Inflow Information 

We have discussed the upflow of information from the internal man- 
agement areas of the business. Let us now discuss the inflow of informa- 
tion from outside sources. Table 8-2 lists the typical external (inflow) 
information required by a chief executive. In Table 8-3 I have listed the 
media through which I obtain external information. 

National Economic Climate. A manufacturing enterprise as a producing 
entity cannot exist alone. It must exist as part of the national economy 
and even of the world economy. The individual enterprise is like a vessel, 
and the national economy is like the ocean. Over and above its direct 
relationship to its suppliers and customers, the company is influenced by 
and vulnerable to large forces generated in other major segments of 
the economy. These forces, like winds or tidal currents, can toss the 
business violently about or cause it to drift serenely toward success. 

The principal source of information concerning the national economic 
climate is the United States government. The agencies most directly 
concerned with the generation, analysis, and reporting of business infor- 
mation are the Department of Commerce, the Federal Reserve Board, the 
Bureau of Labor Statistics of the Department of Labor, and the Small 
Business Administration. The information generated by these agencies 
is almost without limit, and it is practically an impossible task for the 
busy executive to keep up with all of it. Fortunately, however, there 
are many fine management and professional journals which search out 
and predigest large areas of this information for application to a specific 
industry or more generally to the specific needs of business management. 

A different type of coverage of the business picture, which is equally 
valuable, is given by weekly news magazines such as Nexvsweek, Time, or 
U.S. News and World Report. These magazines give not only some 
picture of the general business climate, but also a broad picture of 
everything going on in the nation which provides a good perspective 
against which to balance the business news. 



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226 MANAGEMENT BY OBJECTIVES 

Our newspapers are, of course, the most valuable single source of 
timely, important business information. Newspapers supply basic eco- 
nomic statistics concerning the economy and are alert to the more 
important pronouncements from government agencies or private institu- 
tions as they affect the general business climate. These are written up 
in a properly emphasized form. 



Economic Indicators 

WEEK ENDED MARCH 6, 1960 

Last Week. Prior Week. ie» 

Comrnoditv index 83.8 83.5 85.1 

*Mon6.y in circulation $31,516,000 $31,562,000 $31,129,000 

■■=Coml., indl., agric. loans.. $31,085,000 ^31,175,000 N/A 

Steel operating rate t93.1% „ ,5^Jf^ n i^^AAn 

Steel production (tons) ... 2,654,000 2,690.060 2,5o6,000 
Motor vehicle production . . 173,320 HM?! n JS'S^a 

Daily oil production (bbls.) 7,318,210 7,311,610 7,196,720 

Fieiffht car loadings 553,153 571,625 675,583 

^sfe^tHcpwr output. ^^^^ 14.092:000 14,226,000 12.972,000 

Business failures 277 289 29b 

Statistics for commercial-industrial-agrlculturai loans, steel, 
oil. electric power and business failures are for the preceding weeK 
and latest available. tPreliminary. JNot comparable because of 
lower capacity. *000 omitted. N/A not available. 

MONTHLY COMPARISONS 

t January. Prior Month. 1959. 

Employed 64,020,000 65,699,000 62,708,000 

uSlmploye'd .....,.,. 4,149,000 3,577 000 4.724 000 

^I'^t^^^ fr^^^'^'l . V.V.V$393.30o!Jo'? P?-M l?f.fnS 

•Money supply .$139,800,000 $140,000,000 $139,800 000 

Consumers^ price index.,.. 125.4 ■ ^ ^„ 126.5 .. ,123-8 

•Construction conU^acts .... $2,192,949 $2,224,060 $2,319,167 
♦Manufacturers inventories. $53,200,000 $52,400,W0 H9. 500 000 

^Exports $1,560,300 $1,674,500 $1,400,100 

•Imports $1,129,000 $1,478,000 $1,154,000 

tSeries was revised in December, 1959. 

fFigures shown are subject to revision by source. •000 omittea. 

Commodity index and consumers' price index, based on 1947- 
49=100. are compiled by the Bureau of Labor Statistics. Industrial 
production is Federal Reserve Board's adjusted index of x947- 
49—100. Manufacturers' inventories and personal income, at annual 
rate, are reported by the Department of Commerce. Construction 
contracts are reported by the F. W. Dodge Corporation. Imports 
and exports as well as employment are compiled by the Bureau 
of Census of the Department of Commerce. Money supply is total 
currency outside banks and demand deposits adjusted a« reported 
by Federal Reserve Board, Business failures compiled by Dun 
$: Bradstreet, Inc. 



Fig. 8-6. "Economic Indicators," published weekly in the Sunday 



Neiu York Times. 



The Sunday New York Times, for example, publishes "economic indi- 
cators." The national economic climate can be monitored quicklv and 
easily by studying these economic indicators (Figure 8-6). By studying 
these figures consistently, a "feel" for the national economic climate can 
be maintained which becomes almost second nature to the experienced 
chief executive. 



GATHERING INFORMATION 227 

Vital information on the national economic climate is given on an 
annual basis by the McGraw-Hill Publishing Company's publication 
The Pulseheat of Industry. It is published at the beginning of each year 
and is a brief informative roundup of every industry in the country, its 
past performance, its present status, and its future prospects. 

The New York Herald Tribune holds an annual forum which con- 
siders many important problems, the results of which are published by 
the newspaper. Each January the Neiu York Times runs a special edition, 
surveying all the economic factors of the country which will be important 
in the coming year. At annual budget time, information of this type is 
particularly valuable to the chief executive. 

Meetings and symposia are sponsored by many professional manage- 
ment societies and, occasionally, by the government. Attendance at these 
meetings stimulates thinking and exposes one to kindred businessmen 
from different industries. The resulting interchange of ideas and infor- 
mation can supply perspective to one's own situation. 

Industry Economic Climate. Just as a business is a small vessel on the 
ocean of the national economy, it is also possible to describe particular 
industries as smaller portions of that ocean, such as a sea. A single 
industry is, of course, significantly affected by the national economy. 
However, within a single industry all sorts of local forces can be acting 
on a particular business enterprise which may bear no discernible 
relationship to the national-economy forces. It is necessary for the top 
manager not only to maintain his information and comprehension of the 
national economic climate, but also to watch even more closely for the 
economic and specific forces operating within his own industry. One 
industry can be going into a boom at the same time another industry 
is heading for a decline. 

The principal source of comprehensive information regarding an 
industry is its trade association. Each industry in our national economy 
has one or more trade associations. These are supported by membership 
dues from each of the member companies. They generally have sub- 
stantial fact-gathering services and perform a continuing watching service 
for basic factors that affect the prosperity and activity of the particular 
industry. 

Trade associations generally do an excellent job of researching all 
pertinent data relating to a particular industry, analyzing and digesting 
them, and presenting them in quickly usable form in reports to the 
member corporations. 

In addition to trade associations, American industry is fortunate in 
having one or more very fine publications in each industry. These trade 
journals are published by private publishing companies such as McGraw- 
Hill and Simmons Boardman. They constitute an unexcelled source of 



228 MANAGEMENT BY OBJECTIVES 

news and factual information relating to the activities within an industry. 
The top manager of a manufacturing enterprise must certainly avail 
himself of the highly pertinent, condensed, and specific information re- 
lating to his industry which is ideally prepared and presented for his 
purposes in the published trade journals. 

Most industries have professional societies in addition to trade associa- 
tions. These societies normally publish journals containing the transac- 
tions and proceedings of the society. They tend to emphasize new science, 
new theory, and new concepts relating to the industry. They are in the 
forefront of technology and are accurate indicators of the direction in 
which the industry is moving. Thus they are a tip-off of things to come 
which is vital to the chief executive in planning the future. 

Professional societies and trade associations normally conduct con- 
ferences and meetings periodically throughout the country. These con- 
ventions bring together all the top professional and management people 
in the nation in an industry. The papers which are presented and the 
panel discussions are intellectually stimulating and specifically valuable 
in better understanding the principles on which the industry is founded. 
A particularly fertile source of information on an industry is the trade 
show. The finest collection of competing and related products is found 
at a trade show. Manufacturers both large and small use this medium 
to display their product lines and usually their latest developments. 

As the president passes from exhibit to exhibit viewing the new 
"widgets" on display, he can't help but sense the product trends which are 
developing. He will compare each competing product with his own and 
evaluate its merits against its present and projected lines. The picture 
he forms ^vill be much more meaningful than if he derives his conclusions 
merely from publications, competitors' catalogues, and tales related to 
him by his sales organization. In addition to product and technical ad- 
vances, trade shows also furnish valuable information on competitors. 
The Company Situation. The chief executive requires, of course, a great 
deal of internally generated information in order to control the opera- 
tions of his enterprise. To get the total picture, however, he must also 
obtain information about his company from external sources. The most 
vital sources of this information are: 

1. Customers 

2. Distribution outlets 

3. Competitors 

In the operation of a business, the final pay-off is the sale to customers 
of good products at a fair price which permits the manufacturer to make 
and keep a fair profit. The successful business is one ^vhich has repeat 
customers who feel they are getting the kind of service and the kind 



GATHERING INFORMATION 229 

of goods that they need and want for their money. The president must 
assure himself that most of his customers are well satisfied. It is not 
enough to ask the sales manager if he thinks the customers are happy; 
nor is it enough to hear from the engineering department that the 
customer's engineer is very well pleased. In order to assure himself 
that most of his customers are satisfied, the president must make 
occasional visits to selected customers. His purpose should be not to sell 
the customer anything, but to visit with the several key persons in the 
customer's organization who are concerned with purchasing and using his 
company's products. Here the concept of informative listening and bal- 
anced judgment in managing is brought into maximum play. The most 
valuable information the president can accumulate is to be found in the 
comments, the criticisms, and the commendations which his customers 
may frankly make. Naturally, a customer is not immediately going to 
unburden himself of all his deepest thoughts or feelings regarding the 
company or its products. In fact, he may not even wish to spend his time 
on this subject even if he is hard-pressed. Nevertheless, with some skill 
and proper patience, it is usually possible to get important information 
from a customer concerning the performance of the company. 

While tapping customers for information, it is also well for the 
president to sound out his distribution channels. The people who move 
his products to the customer are a vital link in his business. The president 
must ascertain whether or not the distributors are satisfied, and if they 
are not, he must find out what their problems are and what steps can 
be taken to solve them. 

Distributors traditionally feel neglected in their relationship with 
company management. They like to feel they are a member of the "team." 
Although the president cannot possibly make the rounds of the entire 
circuit, an occasional visit to different distributors will serve the dual 
purpose of providing useful information and at the same time of cement- 
ing relations. 

The chief executive who does not have a speaking acquaintance with 
some of his competitors lives in an isolated world. Although anything 
that competitors may say must be taken with a grain of salt, even the 
strongest competitor may drop a hint as to where he has been particularly 
successful or where the chief executive's company "missed the boat." 

Of course, the chief executive will be careful to avoid discussion of any 
subjects which are legally taboo, as, for example, price fixing. But there 
is no law that prohibits business managers from exchanging thoughts on 
problems common to their respective endeavors. Broadly speaking, their 
interests in developing a market in their industry are the same. Ideas or 
constructive criticisms derived from competitors are extremely valuable. 



230 MANAGEMENT BY OBJECTIVES 

General Information 

A source of general information of value to the chief executive is the 
extensive supply of business books and business literature. Some of the 
more outstanding books are listed in Table 8-3. 

Attendance at business symposia given by colleges or professional man- 
agement societies is another way to obtain general information. As a bare 
minimum, the chief executive should attend at least one week-long 
course or seminar each year on subjects selected to meet his particular 
needs or to stimulate an interest in a new field of activity. The subject 
of management organizations and top management's participation in 
them is discussed in this Handbook.^ 



SUMMARY 

Over the long haul, it is the management team that has the greatest 
resources and the greatest supply of reliable information that is going to 
win out. 

In today's economic climate, a business cannot be run successfully bv 
intuition or theory. Competition, rising costs, and rapid technological 
advances leave little room for error. Business decisions must be based 
on facts. The chief executive must be a generalist in assimilating informa- 
tion. Furthermore, he must have or develop special skills in evaluating 
and using the vast amount of material that comes his way. His infor- 
mation flows upward from within the organization and inzvard from 
outside sources. He functions much like an electronic computer in receiv- 
ing, storing, and processing facts, developing solutions, and monitoring 
feedbacks of results. 

Reliable information is required for every step in the managing process 
—to establish objectives, to attain these objectives, and to measure the 
results. The successful chief executives are those who are most skillful 
in the gathering, evaluation, and use of facts. 

2 Pierre R. Dupont, Chap. 56, Top Management's Participation in Management 
Organizations. 




T. Ross Moore 

PRESIDENT AND GENERAL MANAGER 
ANGLO-NEWFOUNDLAND DEVELOPMENT 
COMPANY, LIMITED 
GRAND FALLS, NEWFOUNDLAND, CANADA 



1 71 slightly over- eleven years, Ross Moore rose from mill manager to 
president of the Anglo-Newfoundland Development Company, 
Limited, one of the miilti-million-dollar enterprises of Canada's largest 
industry. 

Ross Moore also heads, as president, the Montmorency Shipping 
Company, Limited, and the Grand Falls Central Railway Company, 
Limited. Mr. Moore is chairman of the board, Gaspesia Sulphite Com- 
pany, Limited, and a director of Terra Nova Properties, Anglo-Cana- 
dian Pulp and Paper Mills, Limited, and of Lignosol Chemicals, 
Limited. 

A Maritimer by birth (Saint John, Neiu Brunswick), Ross Moore first 
went to Newfoimdland in ip4y as mill maiiager at Anglo-Newfound- 
land. His technical knowledge and executive ability quickly put him 
in line for bigger things. In 19^2, he was appointed assistant geyieral 
manager of Anglo-Newfoundland, and in December, 19^4, he became 
general manager. Within a year he was named a director of the com- 
pany, and at the amiual meeting in May, ic)^6, he was elected to the 
office of vice president. He was made president two years ago. 

Mr. Moore graduated from the University of New Brunswick in 
7955 with a Bachelor of Science degree and has been connected with 
the pulp and paper industry ever since. His first job was as an assistant 
chemist with the Port Royal Paper Company, Limited, at Saint John, 
Neiv Brunswick. Four years later, in ic)^'j, he was named control super- 
intendent of Gaspesia Sulphite Company, Limited, a company he 
would be chairman of one day. 

The Anglo-N ewfoundland Development Company, Limited, which 
he now heads, produces 800 tons of newsprint daily and is located in 
the cozy inland tozvn of Grand Falls. Some would call this a "company 

Photo by Richard Arless Associates, Montreal 



231 



toiun," and certainly his company is its economic mainspring. But Ross 
Moore also plays an active part in community activities— in spite of a 
heavy travel schedule that takes him to many parts of the world each 
year. 

Golfing, curling, and model trains are Ross Moore's hobbies. But as 
anyone who knows him will testify, his real hobby is work-and lots 
of it. 

He is married to the former Mary Smith of Chandler, Quebec, and 
is the father of three children. 

April, i960 



CHAPTER 9 

Synthesizing Information 



In recent years, the manager has emerged from a position of mere 
authority to a position of complexity which demands more kno^vledge 
in many new areas of management thought and activity. In fact, manage- 
ment leadership may well be the dominant social trend in the median 
part of the twentieth century. As Peter F. Drucker has stated,^ "Manage- 
ment seems to express the basic philosophy and concept of modern 
Western society." And he also points out that the concept of management 
is the foundation of our belief in the possibility of controlling the 
material well-being of our people through systematic organization of 
economic resources. 

The influence of the manager on the way of life of our people is out 
of all proportion to his numerical strength. There are really very few 
people who manage or who are even interested in managing. Nonetheless, 
the influence they wield is mighty. 

The importance of management is well recognized in progressive 
Canada and the United States. But management has also plaved a tre- 
mendous role in the rebuilding of Western Europe following ^Vorld 
War II. It is to the great credit of European managers that the economies 
of their countries have remained relatively free from socialistic taint. 
Had they failed, no doubt some form of collectivism would have resulted. 
As a Canadian, I am particularly sensitive to this. Many of our largest 
firms have close financial relations with those in Europe. 

1 The Practice of Management, Harper & Brothers, New York, 1954. 

232 



SYNTHESIZING INFORMATION 233 

Without dynamic management action, it is hard to visualize just where 
many of our great international companies would be today. And even 
though the American dollar played its part in postwar recovery, man- 
agerial knowledge had to be present too. I am convinced that only 
continuing improved management performance will keep the private- 
enterprise system solvent in the years ahead. 

In view of the basic importance of sound management, therefore, it is 
necessary for managers of all levels to have a clear understanding of 
the managing process. In this chapter, I shall discuss one of the less 
widely understood aspects of managing, namely, the act of synthesis. 

DECISION MAKING 

r ■ 

There are many ways to define management and managing. For my 
part, management means decision making, and the manager, be he a fore- 
man in the mill or the executive head of a multiplant operation, is the 
decision maker. Naturally, not all decisions must be weighty ones. 

Decision making can be as innocuous as planning vacation schedules 
for a group of workers by a foreman, or as vital as deciding on the 
construction and creation of new facilities. Both have to do with the 
things which affect the lives of other people. If the foreman, in planning 
his vacation schedules, happens to leave himself shorthanded at a crucial 
time, it can have a serious effect on the profits of his company. A poor 
decision on building new facilities can affect the very livelihood not only 
of the people, but of the enterprise itself. 

Because so much rests on decision making, I believe that we might term 
it the "mark" of the manager. 

The manager must make decisions in many areas. A typical listing of 
functions in which the top manager must play a part might look some- 
thing like this: 

1. He must manage people, at a great many levels, in all possible busi- 
ness and personal situations. 

2. He plays a part in the sales function for his company, even though 
he may make no sales calls. 

3. Naturally, he gets into the production end of the business to a 
greater or lesser degree depending, in part at least, upon the size of the 
company. 

4. He certainly has to take a broad interest in the financial structure 
of the company which he manages. 

5. A corollary activity in his own task of managing is the part that he 
either wishes to play, or must play, in the area of labor relations, 

6. He plays a key role in the company's community or public relations 
activities. 



234 MANAGEMENT BY OBJECTHES 

7. He certainly gets into long-range planning activities for virtually 
every area in management. 

These are but a few of the several "hats" that any manager must wear, 
particularly a company president. But his basic job is one of decision 
making, regardless of the functional areas to which he must give his 
attention. 

There are presidents who keep the number of decisions thev have to 
make themselves to a minimum. There are other presidents who reserve 
the right of final decision on almost every management function. Franklv, 
I do not believe it possible, with today's complexities, for any top execu- 
tive to make sound decisions in every area and function of management. 
Apparently some tr)' to do this, but I have found that it often leads to 
chaos. 

Clarence Randall, former chairman of the Inland Steel Corporation 
and a most eminent American in many important fields, finds that "deci- 
sion-making is a lonely business, and the greater the degree of responsibil- 
ity, the more intense the loneliness." He says that his reason for this 
feeling is the very human wish to share the risk of error and to feel the 
strength of outside support. This feeling seems to be present to some 
degree in all of us. There is much to be said for his opinion. But just as 
many other presidents of companies find decision making sheer pleasure, 
even "fun." 

In a series of business stories run by Fortune magazine, there was ever\- 
type of opinion given as to what constituted the decision-making act. John 
McDonald, writing in Fortune on the subject of "How Executives Make 
Decisions," quotes a number of business leaders, verbatim, on their o^vn 
particular formulas. 

Here are a few of their statements: 

Charles Cox, president of Kennecott Copper, stated that he "does not 
think businessmen know how they make decisions." Then he admits. "I 
know that I do not." 

Charles Dickey, who is chairman of the executive committee of J. P. 
Morgan and Company, simply states that "there are no rules at all." 

Benjamin Fairless, former chairman of U.S. Steel, says, "You do not 
know how^ you do it [make decisions]; you just do it." 

The late Thomas J. ^Vatson, Sr., constantly admonished us to "Think." 
But Roger Stevens, New York real estate tycoon, reverses this and is per- 
fectly frank to admit that "whenever I think, I make a mistake." 

It is evident, therefore, that many decision makers are not reallv quite 
able to put their fingers on just what they feel about decision making, 
how they arrive at decisions, or what processes are included in the churn- 



SYNTHESIZING INFORMATION 235 

ing, mental mishmash which often attends the birth of a decision. There 
probably can be no one best formula for sound decision making. It de- 
pends too much upon the individual. But there are a number of things 
which we can learn from a study of the decision-making process which 
can help us in our own day-to-day managing activities. 

Can Decision Making Be Learned? 

It would be very convenient and comfortable merely to say that decision 
making is a something which springs from the intuition of certain types 
of people. This would make our problem quite simple. We could go back 
to the old saw that ''either a man has it or he doesn't." 

But this is scarcely good enough for today's managerial thinking. We 
also once thought the entrepreneur could not be replaced. But in most 
successful companies, entrepreneurism has disappeared, and it has been 
replaced, quite successfully, by the science of management. 

What do we mean by the science of management? Just this. Today, we 
take the tools of the management "artist," observe them, record them, 
systematize them, adapt them to our present needs, and then use them 
and instruct others in their use. Thus the science of management 
means little more than identifying instinctive actions of the entrepre- 
neur and recording them so that others can use the same processes success- 
fully. 

I maintain that most intuitive things, if we understand their processes, 
can be learned. And decision making is largely intuitive. 

I have personally found one further very important thing about the 
decision-making process which indicates that it can be learned. The more 
decisions I make, the better is their quality. 

I have also observed that there are those who seem to be unable to 
make decisions. I have at times managed men at various levels who had 
difficulty in reaching decisions of any kind. Some, I find, are merely 
building "a fence around their jobs." Others are actually afraid to take 
a chance. Still others simply do not want the responsibility of any form 
of decision making. 

When I run into these situations, I try to peg the man immediately at 
the level to which he has risen. There should be no further promotions 
for him. A man unable to make decisions merely adds a form of paralysis 
to any organization. 

As to what marks one man as a decision maker and another as a 
follower, no one really knows. It is, perhaps, buried in attitudes or basic 
temperament. But in any event a manager must remember that he is 
running a business, not a philanthropic institution. When the ability to 
make decisions is lacking, an individual cannot be a successful manager, 
no matter how gifted he may otherwise be. 



236 MANAGEMENT BY OBJECTI\ ES 

Steps to Decision Making 

The steps which lead to sound decision making have been variously 
described by different writers. Peter Drucker, in the Practice of Manage- 
ment,- tells us that decision making has five distinct phases: 

1. Defining the problem 

2. Analyzing the problem 

3. Developing alternative solutions 

4. Deciding upon the best solution 

5. Converting the decision into effective action 

No one could disagree that these factors should help in the decision- 
making process. 

Colonel O. G. Haywood, an authority on military decisions, has de- 
scribed decision making in a somewhat similar way. He gives the follo^v- 
ing series of five formal steps: ^ 

1. Determination of the mission 

2. Description of the situation courses of action 

3. Analysis of opposing courses of action 

4. Comparison of our courses of action 

5. The decision 

These are two slightly different ways of describing the process. Perhaps 
the only thing that these listings omit is the "human equation." Decision 
making is not a simple process. For instance, take the chess game. The 
total possibilities in a chess game, we are told, are more numerous than 
the human mind is constitutionally capable of mastering. If this be true 
about a chess game, I believe it can also be true about the managing of a 
modern multi-million-dollar company. 

The big trouble in all such listings, it seems to me, is that most of the 
emphasis is put on analysis. Analysis is most important and is certainlv 
necessary before intelligent decisions can be made. It is necessary to break 
any situation down into the elements which compose it before ^ve can 
begin to understand it. But analysis, in itself, decides nothing. It merelv 
leaves us with a number of small, and at that point unrelated, pieces of 
the total situation. 

The Association of Consulting Management Engineers has added a step 
which seems to make a great deal of sense in achieving an understanding 
of the art of decision making. This is a mental process known as synthesis, 
and it is probably the most important of all the elements which lead to 
sound decision making. 

2 Ibid. 

•" "Military Decision and Game Theory," Journal of the Operations Research Society 
of America, November, 1954. 



SYNTHESIZING INFORMATION 237 

The Association lists the following four "elements of managing" under 
the general heading of "Establishing Objectives": 

1. Gather information 

2. Synthesize information 

3. Plan 

4. Decide 

Step 2, synthesize, it seems to me, provides the important "human equa- 
tion" which is missing in most listings. 



SOME THOUGHTS ON SYNTHESIZING 

What do we mean by "synthesize information"? Let us assume that a 
man has gathered all the information which he needs or which is avail- 
able about a given situation. He has (i) obtained information, counsel, 
and advice from his associates, (2) obtained information from his com- 
petitors (in this day and age, little difficulty is encountered), (3) acquired 
full information on the money markets, present and projected, (4) checked 
with his trade association, (5) digested business periodicals, (6) studied his 
market forecasts, and ('7) accomplished all the other things necessary to 
equip himself with facts related to the problem in which he is interested. 

Many executives may say that this is the time we should begin to 
analyze. I believe that this is the time for synthesis. 

The Oxford Dictionary defines "synthesis" as "combination, composi- 
tion, putting together (opposite of analysis); building up of separate ele- 
ments . . . into a connected whole . . . especially a theory or system." 

I like to define synthesis as "developing logical assumptions from known 
facts." This seems to me to express synthesis in a few words which most of 
us can understand quite easily. 

Synthesis is the putting together of the many bits and pieces of infor- 
mation which we get from many sources, arranging them logically, and 
developing from them a picture of the whole situation, which we can then 
use as the basis for making a decision. Until we have created through syn- 
thesis a picture that seems to us to be logical and correct, no decision is 
possible. 

It would appear that this process we call synthesis is by far the most 
important element which leads to sound decisions. Almost all well-trained 
managers can gather facts, analyze reasonably well, do an adequate job 
of planning, and carry out decisions. 

But the ability to synthesize is to me "element X," the characteristic 
that marks the difference between brilliant results from decision making 
and mere journeyman results. The actual act of synthesizing is difficult to 
describe. At times it seems to take place quickly in a flash of intuition. At 



233 MANAGEMENT BY OBJECTIVES 

Other times, it appears more like putting together a jigsaw puzzle, piece 
by piece. Some have referred to synthesis as the result obtained from ones 
"internal computer," drawing on modern electronic concepts for the 
simile. Others regard it as being more like a mechanical process, an in- 
ternal churning, pulling, and tugging to put together information in 
order to arrive at correct assumptions, or "logical assumptions based on 

known facts." 

The ability to synthesize appears to differ greatlv among individuals. 
Some men can develop a finished picture from a very ie^v pieces of scat- 
tered information, and some cannot. This would indicate that the ability 
to synthesize is related to imagination, as indeed it is. But also two differ- 
ent men will often create two different pictures from the same set of in- 
formation, even when a great deal of information is available. Thus the 
ability to synthesize rests on more than imagination alone. 

Clarence Randall once spent a great deal of time trving to analvze ^s'hat 
he did when he was managing. His statements on svnthesis in management 
give us a good clue to help isolate the "element X" I mentioned just now: 

One further concept will be quite clear at the end of a dav spent widi the 
executive which is that he must at all times see his job as a whole. 

This is the result of the synthesis process. 

As the problems come over his desk, they get distorted emphasis, because he is 
continuously receiving the opinions of subordinates who see only one segment of 
the total problem. 

This is perhaps management's hardest task. Special pleading, one-sided 
presentations, the persuasions of people who have an ax to grind, all make 
it difficult to synthesize any given set of information correctly. 

In each echelon in the distribution of authority, ho^vever. there comes a time 
when the person responsible for decisions must evaluate die relationship of each 
segment to the others that are involved. The chief executive, for example, can- 
not wisely make a decision ^vith regard to operations until he has evaluated the 
problem in terms of sales policy, public relations, financial implications, and 
other phases of the business. He must have a sound instinct for svnthesis. 

A man lacking the ability to synthesize will lack the ability to manage 
well. 

Just as for our progress in technology, there must and should be men ^vho 
are qualified to pursue this divisive approach to inquiry, so like^sise diere must 
be men whose training is in svnthesis. or the correlating of the results of divisive 
effort into a unified and effective whole. 

This I take it has been the aim of the philosopher through the ages: the open- 
ing of men's minds to the relationship of the part to the whole. 



SYNTHESIZING INFORMATION 239 

So perhaps the philosopher is the one who has laid the foundation for 
management skill. 

Similarly, Chester I. Barnard, former president, New Jersey Bell Tele- 
phone Company, has said, "The essential aspect of the executive process 
is the assessing of the organization as a whole and the total situation 
relevant to it." 

A Canadian management consultant with whom I've had a long rela- 
tionship helps to clarify still further the nature of the synthesizing process 
and the factors which result in good synthesis when he says "the important 
part of the executive job in synthesis is that it is largely responsible for 
the quality of decisions made; that it is not susceptible to formalization; 
that successful synthesis depends greatly on the knowledge of the execu- 
tive in: 

1. His own particular industry 

2. His business environment and economic conditions now and projected 

3. The ability to place proper emphasis on available data to obtain a 'bal- 
anced' picture - - . ^ 

4. A sense of accurate timing ' ^ . 

5. Creative imagination" - ' • 

Factors Playing a Part in Good Synthesis 

The preceding listing provides a starting point for an expanded listing 
of factors which are necessary for a man to be able to synthesize intelli- 
gently. Let me repeat that some people will always do a better job than 
others and some will never do a good job of it. But if we stay with our 
definition of "developing logical assumptions from known facts," I believe 
that the following outline may be of some help to those who would 
methodize the synthesizing process. 

1. A large and accurate supply of information from all sources is 
vitally necessary. 

a. There should be a great deal of knowledge about the specific 
business. There is no difficulty in finding it. There is also very 
little difficulty in finding out about a competitor's business. This 
poses no problem. 

b. There should be a good understanding of the business environ- 
ment. Again, in this day and age we can find out more about the 
business environment of almost any kind of business than ever 
before. For instance, a newsprint business depends on the bur- 
geoning population of most countries of the earth. The world 
demand for newsprint now and in the future is constantly grow- 
ing. What will be the demand for newsprint as the underdevel- 
oped countries grow more sophisticated and in need of more 
information? What will the better standard of living cause in 



240 MANAGEMENT BY OB JECTHES 

newsprint demands? In other words, those of us whose businesses 
are affected by the demand for newsprint must be aware of even 
such remote things as having to supply the Hottentots, if they 
decide that they need information, with enough more newsprint 
to keep their future theoretical presses busy at all times. 

2. Problem-solving ability is important, but not as important as 
knowing the right question to ask on any given situation. 

3. Intelligence is needed for synthesis. It takes an inquiring and 
thoughtful mind to anticipate problems before they appear. In fact, 
much more intelligence is needed for recognition than solving. 

4. There must be some form of orderly thinking in order to fit the 
various pieces of information together. Perhaps it is a combination 
of inductive and deductive thinking in the long run. 

5. Saturation, not experience, with a specific business is required so 
that all the routine and detail is second nature and no time needs 
to be wasted on it. 

6. Saturation with the whole philosophy of a specific business and its 
management practices is desirable. This may seem to go against the 
concept that a man who can run a steel mill can also run a candv 
plant. Although a man may, indeed, be able to manage one kind 
of business or another, there are certain managerial limitations 
resulting from lack of detailed knowledge that have a verv great 
bearing on accurate synthesis and sound decision making. Detailed 
knowledge of a specific industry or business is of tremendous value. 

7. Judgment is needed for good synthesis. Many people define judg- 
ment as "common sense." I lean rather to the idea that good judg- 
ment is the result of "uncommon" sense. 

a. Intuition is another important but illusive factor. Intuition can 
be best described as "feel," or even perhaps as "smell." Un- 
fortunately, we do not have any courses in our colleges or uni- 
versities which teach "feel." It is in the same category as sensi- 
tivity, which we do not teach either. 

8. Imagination, too, should be a prerequisite for synthesis. Open- 
mindedness is supposed to help us achieve a certain degree of 
imagination. Personally, I have never cared for the term "open- 
mindedness." It suggests vacuousness, to me. But it seems to be true 
that a certain degree of open-mindedness is necessarv. And cer- 
tainly one's mind must be ready for acceptance of every tvpe of 
innovation. Suffice it to say, imagination is a must. 

9. Creative ability, if we can distinguish it from imagination, is prob- 
ably the single most important factor which helps us to manage. 
There is no way to measure this, scientifically, as it so far defies all 
forms of regimented approach. The top manager will, however. 



SYNTHESIZING INFORMATION 241 

have to have creative ability. Without it, not only can he not use 
synthesis as a process, but he will have difficulty managing anything 
over a period of time. 

10. Energy is also an important consideration for sound synthesis. 
Mental energy, in particular, is important. It has its part in creative- 
ness, in imagination, in virtually everything that will be demanded 
of the manager as he attempts to put his many facts into perspec- 
tive. 

11. Self-knowledge is important when management decisions are to be 
made which affect the fortunes of so many other people. How 
strongly do your emotions affect the decisions you make? Do you 
have a tendency to withdraw from difficult human-relations situa- 
tions? Does your experience, training, or educational background 
tend to make you view one corporate activity sympathetically at the 
expense of the others? Have you been truly objective? Or is the 
decision based on preconceived ideas? 

12. The temperament of individuals also plays a big part in the sound- 
ness of decision making. There seems to be little difference, as far 
as success is concerned, between the executive who is a metronome 
and works around the clock and the one who calmly sits back and 
works from nine to five. This shocks some people. But I don't be- 
lieve that there is any single right temperament for any executive. 
It plays a part in what he does and how he does it. But this is about 
all we can say. I have often thought how nice it would be if we 
could "slot" people. Then all we would need to do would be test a 
group of people and find out exactly which one had the best tem- 
perament for being a manager. But we have the happy, extro- 
verted, hail-fellow-well-met individual who does tremendous think- 
ing out of questions and answers on his feet before a group, and we 
have the shy, retiring individual who arrives at the same conclusion 
by an entirely different process. There are no fixed patterns for 
successful managers. 

Up to this point I have listed the things which are necessary to good 
synthesis. It might be well to look at a factor that makes sound synthesis 
impossible— the factor of prejudice. This includes the obvious prejudices 
based on race, color, or creed and the more dangerous prejudices against 
progress, resistance to change, rigidity. Prejudices prevent one from 
synthesizing any given picture correctly and lead to what often appear to 
be "errors of judgment." 

Some Examples of Good and Faulty Synthesis 

I have pointed out that of all the factors which take place in this thing 
we call synthesis, none is so important as creative imagination. All too 



242 MANAGEMENT BY OBJECTIVES 

often, we are inclined to think of this great talent as a something used 
only by the inventor or innovator. But managers use it too. 

Creative imagination permits one to take a given set of information 
and synthesize it into a picture that has greater dimensions, depth, and 
detail than is possible without it. That is why some people are able to 
see greater opportunity in a given situation than others; it helps to ex- 
plain why some competitors in a given field are more successful than their 

rivals. 

Most of us know the story of the Lambert Pharmacal Companv, the 
makers of Listerine. The product was known as a mouthwash, and at one 
time it topped all sellers on the market. Lambert could have gone on 
almost indefinitely making their mouthwash. But they asked themselves, 
where else on the human body could the same ingredients be used bene- 
ficially? 

One of the obvious and first alternatives was its application to the hair 
to check dandruff. Then they really went to work. They made a similar 
product called Absorbine as a liniment for sore muscles. And, finallv. 
using again much of their basic formula, a solution was developed for 
the treatment of athlete's foot. 

Then there is the story of the Minnesota Mining Company. It grew 
from a little specialty house producing Scotch tape into the giant cor- 
poration which it is today by creating literally thousands of ne^\- uses 
for its basic product. 

Alex Osborne, in his popular work Your Creative Power, ^ cites thou- 
sands of examples of brilliant synthesis. The story of Corning Glass 
Works, which developed a stronger globe for railroad lanterns, then used 
the same type of glass for battery jars, and finally progressed to ovenware 
glass that could stand the heat of direct flame, is a perfect example. 
Du Font's use of coal, water, and air to make water glass is perhaps a 
greater example of synthesis. 

Understand, I am not talking about invention. The information, once 
a product had been created, was available, waiting for someone to put it 
to new uses. 

In the steel industry, slag is one of the costliest of ^vaste materials. Xo^v 
it is salvaged for making cement and for processing into building blocks. 
It is also sold as a soil conditioner. Examples are legion throughout all 
business and industry. 

Sound synthesis also calls for great adaptation. It is a truism that very 
little is actually new. We incessantly copy from the experiences and 
products of others. Wendel Phillips points out, "In every matter that re- 
lates to invention, to use, or being, or form, we are borrowers." Borro^sing 
is a legitimate business practice. 

4 Your Creative Power, Charles Scribner's Sons, New York, 1951. 



SYNTHESIZING INFORMATION 243 

Yet today we also see examples of management action which show 
complete lack of any creative synthesis. 

One good illustration of this is the company that moves its plant from 
one area to another to obtain the advantages of lower labor rates. In 
many cases, this shows a lack of understanding of the total situation, for 
a mere change in geography seldom gives permanent advantage, especially 
to the company that does nothing, or very little, to get at the fundamental 
reasons for high labor costs. This is an example of recognizing the prob- 
lem but failing to ask the right question. Most companies seeking lower 
costs, not only for today but tomorrow as well, would be far better off 
if they were to improve their management methods, their manufacturing 
processes, and their skill at handling human problems. 

Effect of Differences in Synthesizing Ability on Leadership 

The manager who has gathered information, synthesized it, planned, 
and decided on a set of objectives next has the responsibility of directing 
the attainment of these objectives. Sometimes he finds it difficult to get 
his associates or even his subordinates to show any enthusiasm for his 
ideas. Somehow they do not grasp what he wants them to do, and they 
comply with his directions grudgingly if at all. 

I recall very vividly watching a brilliant and capable friend of mine go 
through an experience like the following as a young man. This was in a 
trade association where action cannot be obtained by giving orders but 
only by persuasion. For months my friend had watched an older, inept 
president fumble his way through situation after situation without ac- 
complishing anything important. My friend studied the matter patiently. 
He gathered information about every phase of the association's operations. 
He wanted to be ready if he ever had the opportunity to give the asso- 
ciation the leadership it so badly needed. 

Then at last he was elected to the presidency. At the first board meet- 
ing, he could hardly wait until the routine business had been disposed of. 
When it had, he began to present his well-conceived plan for future 
action. At a constantly accelerating pace, he poured out his ideas about 
what should be done, about the actions which should be taken to enable 
the association to realize its full usefulness to its members and to the 
whole economy. 

He was so carried away w^ith the bright picture of the future that he 
visualized that he failed to notice that his board members were sitting 
motionless with downcast eyes. Finally he finished breathlessly on a 
triumphant note and asked for discussion. After a moment of painful 
silence, someone moved that the meeting should adjourn. 

It was a painful experience and one which neither my friend nor I 
ever forgot. In retrospect, of course, it is easy to see what happened. My 



244 MANAGEMENT BY OBJECTIVES 

friend had an unusual creative imagination. In a few sentences, he 
sketched the picture which he had synthesized in his mind after a long 
period of information gathering. The picture was cnstal clear to him, but 
he lost the others soon after he started to speak. At that point communi- 
cation ceased. The board members did not hear him, did not understand 
him, and certainly were in no way motivated by what he said. The best 
they could do was to wait politely until he was finished and then escape 
to a more comfortable atmosphere as quickly as possible. 

This is an extreme example of what happens almost daily when a 
manager does not recognize the need for taking the time to help his people 
through the process of synthesis. The fact that he may himself have done 
a good job of synthesis does not mean that he can cram into the minds of 
his associates a mass of undigested, and often indigestible, facts, figures, 
viewpoints, and ideas and expect them to reach almost immediately the 
same conclusions he has reached. 

Almost everyone has had the experience of working out some plan, 
perhaps over a period of weeks or months, perfecting the details and 
anticipating every objection which might be made to his course of action. 
But on meeting with his associates, he finds that it is virtually impossible 
to sell them on his solution. Instead of accepting it enthusiastically, thev 
start to argue. Since he has anticipated their objections, he should be able 
to answer them without any trouble. But still he fails to gain accept- 
ance. 

Put it in terms of your own experience. Have your associates ever failed 
to respond promptly and enthusiastically to a sound idea? If so, does this 
mean that your associates are stupid? No. The trouble is that you have 
not given your people time for mental assimilation. Ho^\' can they be 
expected to digest in a few minutes, or even after a long discussion, ^diat 
it has taken you weeks to think through? 

It will be well for every manager to ponder this thoughtfullv. There 
will always be roadblocks, based on misunderstanding, to hold up action, 
even though you have carefully worked out sound programs. 

To work more effectively with people and to get ideas accepted, we 
must always allow plenty of time for mental digestion. Above all, we 
must learn to curb our impatience when our spark of enthusiasm fails 
to set off a spark in others. 

What of Tomorrow? 

As we stand today, in our management knowledge, ^\^e are still flying 
blind in most of the areas of creative management. 

Educational trends throughout the AVestern ^vorld indicate that more 
and more colleges and universities are conducting courses dealing \vh\\ 
creativity and imagination. This will certainly be an aid to sound synthesis 



SYNTHESIZING INFORMATION 245 

and decision making in the future. It seems to me, however, that there are 
four areas for the future manager to concentrate on if he wishes to become 
proficient in the area of decision making: 

1. He should be educated to think in broad general terms. There seems 
to be a growing area of agreement among business executives and educa- 
tors that specialized education in engineering, accounting, physics, and the 
like, leaves a great deal to be desired as education for eventual managerial 
maturity. Most authorities agree that the "sense" of the education is what 
really counts. Some people have gone so far as to suggest not only further 
training along our present-day liberal arts courses, but even broadening 
these to include more literature, and even strong dosages of music appre- 
ciation. Why is this so? The feeling is that this will make a man better 
oriented to the total environment in which he lives and hence able to 
synthesize more realistically. 

2. His knowledge and training on the job should be broadened. All 
too often, a man is given a position within a company where he must 
spend so much time doing this job to perfection that he is virtually blind 
to what goes on in the rest of the company. When he is promoted and 
then again gives single-minded attention to the job at hand, there is little 
opportunity for much additional learning. To avoid the narrowing 
effects of this method of operating, some companies make a conscious 
effort to relocate their more promising executives from time to time. Not 
only are they rotated to different geographical areas, but they also are 
rotated in one another's jobs to give them greater depth and experience. 
This trend is one that is likely to be expanded upon in the future. 

3. He needs saturation instead of experience. To achieve greater 
creative ability which leads to better decision making, one needs to be 
utterly saturated with company policies, plans, and objectives so that 
these need not be considered when trying to put together information 
in order to arrive at sound decisions. 

4. There must be a stimulus within the company to encourage creativ- 
ity. Much of this must depend upon the top executive in the company. If 
he deliberately sets an example and stimulates others in searching for 
solutions, he will find that the creative abilities of even the least of his 
managers will be surprising indeed. 

CONCLUSION 

Where and how does synthesis take place? The truth is, there is no 
formula for synthesis. It is the creative element in managing. In my own 
case, synthesis seems to come from reading, listening, discussing, and even 
arguing. Then follows a period of churning, during which an idea, a 
plan, or a suggestion is attacked by what Robert Rawls calls the "juices 



„,^ MANAGEMENT BY OBJECTIVES 

of knowledge, doubt, experience, hope, suspicion, fear, faitfi." ^ Finally, 
the solution appears. The mental processes of synthesis may take on y a 
fraction of a second, or they may take days, weeks, or months, depending 
on the "mental feel rate" of the individual and the importance o£ the 
matter involved. But the entire process has to be gone through. Until it is 
completed, until an acceptable picture of the situation has been evolved, 
the mind refuses to decide. And this is probably fortunate. 

Out for Mental Digestion, Updegraff Press, Ltd., Scarsdale, N.Y., .949. 



Time 



Carter L. Burgess 



PRESroENT 

AMERICAN MACHINE & FOUNDRY COMPANY 

NEW YORK, NEW YORK 




Carter L. Burgess joined American Machine & Foundry Company as 
president in February, ig^S. He is also a director and member of the 
Executive Committee of AMF, a director of American Airlines, a 
member of the Director's Advisory Council of the Morgan Guaranty 
Trust Company, and a director of Morgan Guaranty International 
Banking Corporation and Morgan Guaranty International Finance 
Corporation. 

Mr. Burgess was graduated from Virginia Military Institute in ic)^() 
with a B.A. degree. For a period prior to World War II he served as 
a claims adjuster for the Liberty Mutual Insurance Company in Boston 
and New York and then as assistant manager of Stone Printing and 
Manufacturing Company in Roanoke, Virginia. 

In ig.fi he was ordered to active duty as a Second Lieutenant, U.S. 
Army, was assigned to headquarters of the Combined Chiefs of Staff in 
Washington, D.C., and then to the General Staff of the Allied Force 
Headquarters in North Africa. Later he was assigned to the Supreme 
Headquarters Staff for the invasion of Europe and served throughout 
the European campaign as assistant secretary and later secretary of 
the General Staff. He attained the rank of Colonel. He also served as 
administrative secretary of the Casablanca Conference. ' 

Upon return from service in 1945, Mr. Burgess became special as- 
sistant to the Assistant Secretary of State in charge of administration 
and the Foreign Service. While in this position, he was deputy execu- 
tive secretary of the International Secretariat at the United Nations 
Conference at San Francisco in 194^. 

From 1^)46 to ic)4'/ he served as assistant to the president of Trans 
World Airlines, Washington, D.C., and from ic)4'j to ic)^^ was director 
of administration of the General Aniline and Film Corporation. 

In 19^3, Mr. Burgess became assistant to the president of the Uni- 
versity of South Carolina. During this time he served as consultant to 
the President on White House staff organization and on cabinet and 



247 



staff organization; to the Senate Armed Services Committee on Title 
IV of the National Defense Act; and to the Under Secretary of State 
on staff organization. He was also acting staff director of the Secretary 
of Defense Committee on Fiscal Organization and staff director of the 
Secretary of State's Public Committee on Personnel. 

In September, ic,^4, Mr. Burgess was given the appointment of 
Assistant Secretary of Defense (Manpower, Personnel and Reserve) by 
President Eisenhower. He was sworn in Sept. 24, 19^4. He left govern- 
ment service in 7957 to become president of Trans World Airlines. 

At the time of his departure from Federal service, Mr. Burgess was 
presented the Defense Department's highest civilian award, the Certifi- 
cate of Appreciation, for "his outstanding contribution to the national 
security." A second Certificate of Appreciation was presented to Mr. 
Burgess by the President of the sixteen local lodges of the American 
Federation of Government Employees. 

He was formerly a member of the Board of Governors, American 
Red Cross, and board of directors. United Service Organizations, Inc. 

Mr. Burgess has been awarded the American Legion of Merit, the 
French and Belgian Legion d'Honneur and the Croix de Guerre avec 
Palme, and the Order of the British Ernpire. 

He has received the honorary degree of Doctor of Laws from the 
University of South Carolina and from William Jewell College and an 
honorary Doctor of Engineering from Worcester Polytechnic Institute. 

Carter Burgess zvas born at Roanoke, Virginia, on Dec. 31, 1916. Mr. 
and Mrs. Burgess and their five daughters reside in Pelham Manor, 

New York. 

March. iq6o 



CHAPTER 10 

Planning 



Of all the techniques used by modern management, planning, more than 
any other, characterizes every action of management, including, of course, 
the most important action of all, the action of decision. 

Planning is one of the cornerstones upon which successful enterprise 
depends. This is true in any endeavor, whether it be the management 
of a family budget, a business enterprise, an educational program, a 



248 



PLANNING 249 

government project, or a military campaign. As one famous and uniquely 
successful general once said, "A poor plan is better than no plan at all." 
In our company, the act of planning keeps our management group think- 
ing and working ahead of just today's activities and problems. 

Planning — The Concept 

Management does not have the choice to plan or not to plan. Manage- 
ment m7ist plan if it is to survive and keep its enterprise growing while 
engaged in the 7nust struggle of daily competition. Even so, planning is 
by no means the whole answer to success. Plans without decision and 
decision without action will make meaningless the best plans ever con- 
ceived. Planning, deciding, and acting are the three cornerstones support- 
ing success. 

It all sounds very simple. Planning is merely the analysis of a problem, 
thinking out the forward solutions to that problem, and then outlining 
the steps that must be taken to reach the objective defined in the solution. 
Cut and dried. All you have to do is follow the rule book. Unfortunately, 
it is by no means as simple as that. Sound and reasonable planning 
evolves from experience, and the action related to planning rests as much 
on instinctive feel for the facts, acquired by experience, as it does upon 
subjective logic applied to objective facts. Logic and reason must be 
blended with "anticipation" and "instinct," the latter having been sharp- 
ened by experience. The two go together. Call them, if you will, the 
rational and psychic elements that combine to make planning successful. 
I certainly do not claim them as a new "philosophy of planning." But I 
know that my own experience has taught me how true they are— and how 
much better guideposts they are than many of the procedures and pro- 
grams one finds in the rule books. 

Military Planning 

My experience with planning began shortly after I was graduated from 
the Virginia Military Institute. I had gone to work in a small manufac- 
turing business. In this business, at that time, there were no plans- 
only a series of crises, one after another. That situation might have 
been described as "too much instinct" and not enough "objective anal- 
ysis." 

Then, with the coming of World War II, came an opportunity for me 
to observe and participate in research, objective analysis, and logic on a 
grand scale. I was assigned to the headquarters of the Combined Chiefs 
of Staff in Washington. I was the courier for the plans for the invasion of 
North Africa when they were delivered to President Roosevelt in Hyde 
Park, and eventually, as 1 moved on to more important tasks overseas, 
I saw those plans evolve into books, assignments, orders, and eventually 



250 MANAGEMENT BY OBJECTIVES 

battle units. Luckily, I was where I could see the whole panorama of 
planning for a major military campaign— the "logistics" that go into mak- 
ing a victory. But there was more than logistics in military planning; 
there were also the inevitable anticipation and instinct— the decisions 
required to adjust plans to sudden realities which are not known parts of 
any planning cycle. 

When the Combined Chiefs of Staff gave General Eisenhower his major 
directive for the invasion of Normandy, it was typed on one sheet of 
paper. Imagine the pandemonium that might have ensued— and the 
certain catastrophe that would have resulted— if the military planning in 
support of that directive had paralleled what had existed in my first 
manufacturing experience. The preparations for the Normandy invasion 
called for the most intensive planning. Nevertheless, after all the pre- 
liminary planning, training, and supply had been effected, there still had 
to come the agonizing hour of decision, when General Eisenhower's 
powers of anticipation, his "feel" of the situation based on experience, 
moved him to give the instinctive go-ahead for the invasion despite a 
weather situation which might have caused other men to hesitate. Nothing 
could better illustrate the importance of decision in bringing a plan to 
final success. Some people love to plan, but they don't know when to act 
—or they are afraid to act. 

Action in Planning 

The importance of action, following decision, w^as shown to me after 
the war, when I served in the Federal government. In one department of 
the government, an excellent plan, which had been prepared over a period 
of time, was decided upon favorably in the month of November. The 
plan came to naught, however, because the approval to act upon it was 
not handed down until the following June! By that time the conditions 
that had caused the creation of the new plan had crept back into the 
action directives developed long after the study, so that the status quo ^\'as 
not disturbed. In other words, those individuals who were satisfied whh 
the past prevailed over those who saw the pressing needs of the future. 
As the problem widened, however, a public study commission was formed 
to investigate the situation. The commission discovered the flaw in the 
past efforts and developed a new plan. Actions proposed by this com- 
mission were put into effect upon their submission and before they could 
be watered down. These decisions have now begun to fulfill the needs 
previously negated by a lack of timely and forceful action. 

Elements of Planning 

To turn now to the business world, we must also acknowledge that 
planning is not all statistics or logistics; it is thought and timely action 



PLANNING 



251 



based upon experience, concept based upon instinct, and imagination 
based upon anticipation. To be sure, in management planning we use 
technology, research, and accountancy. We use statistics and market 
analysis. We use the laboratory and the proving ground and the pilot 
plant. But these do not completely solve our problems. They are merely 
the tools we use in the planning process. The problems are solved inside 
management heads. No matter how accurate our statistics, how exhaustive 
our research, how imaginative our product development, our planning 
can "plan" us into disaster if our management lacks the judgment neces- 
sary for the planning process. This implies that who acts on the planning 
may be more important than the plans themselves. 

In business, unfortunately, there seems to be no apt phrase to describe 
the successful planner, as there is, for example, to describe the successful 
gardener. The good gardener is the man who has "a green thumb." 
Others can follow his instructions to the letter yet fail to get the same 
results. In cooking, a young housewife can follow precisely the recipe 
of her mother, yet her dish somehow lacks the same savor. One of our 
most successful businessmen once said that the art of making money was 
an isolated skill that bore no traceable relation to any other attribute, 
learning, or ability. Perhaps so. About all that can be said of this in- 
definable "sixth sense," when it is applied to planning, is that it seems 
to consist of an instinct that senses future requirements and combines 
with a sense of timing to make some men and companies succeed im- 
measurably above most others. All of which means that the human 
element is important and that sound plans must be based upon the capac- 
ities and special abilities of a company's people. 

Summarizing, then, the general nature of planning before proceeding 
to specific examples of planning in operation: 

Planning has intuitive as well as analytical aspects, and both are related 
to experience. 

Planning involves decision and action, and both are related importantly 
to timing. 

Successful planning requires, above all, people-the right kind of people. 

Specifics of Planning 

Before entering into a discussion of our company's planning activities, 
we must recognize that management planning deals with specifics, but 
these specifics are not as simple as their word labels would indicate. To 
illustrate what I mean, consider below a list of key words in planning and 
their definitions from Webster's Dictionary on the left of each word. 
Then compare, on the right of each key word, the definition that business 
experience might give to it: 



252 

Webster's Dictionary Key word 

A method or scheme of action plan 



Projecting a method or course planning 
of action 



A plan of future procedure 



PROGRAM 



An aim or end of action; goal objective 



A meeting together of people 
. . . for the purpose of . . . 
purchase and sale; the eco- 
nomic extent of commercial de- 
mand 

Act of selling . . . whereby 
ownership of property is trans- 
ferred 

A financial statement of esti- 
mated revenues and expendi- 
tures 



Foresight of consequences, and forecast 
provision against them 



MANAGEMENT BY OBJECTHES 

Business definition 
A short- or long-term road 
map for future action embrac- 
ing date, objective, responsi- 
bility, and provisions for audit 
of results 

Tracing the business past, ana- 
lyzing the present, and chart- 
ing future action 

Part of a plan, amplified in 
greater and more specific de- 
tail, which is follo^ved in ac- 
tion toward achieving a mas- 
ter plan 

The goal for action which 
changes with the constantly 
changing conditions of busi- 
ness 

A process, not a place, bv 
which business supplies people 
and satisfies their desires 



Act and art of selling designed 
to produce a profit 

A statement, usually on an 
annual basis, of the expected 
utilization of resources: a pre- 
determined schedule of goals 
in terms of time, men. money, 
and materials 

An estimate of future condi- 
tions essential to both budget- 
ing and planning in ^vhich 
provision is made to present, 
avoid, or improve conse- 
quences by positive action 



Note how much more comprehensive are the definitions on the right 
and how much more specific they are in many respects. These ^vords and 
their definitions will guide our discussion of American Machine Foundrv 
Company's management planning. 



PLANNING 



253 



PLANNING AND ACTION 

As it was in many industries, the position in which AMF found itself 
after World War II required planning and action. Almost a decade 
earlier, a program of decisive action had been detailed in order to ensure 
the company's growth through a diligent search for new products and 
businesses. Four criteria were established to assist in the search: 

1. Look for a market that is large. 

2. Make sure that the market you choose is relatively unmechanized. 

3. Find a device that is patentable and has sufficient novelty so that you 
can obtain a continuing royalty. 

4. Don't plunge into a new venture without first finding a man who 
has lived successfully in the market you are about to serve. 

That was the program. The company looked around and saw the 
bowling industry with its need for a machine to set up the pins and return 
the ball, in short, to take the place of the pinboy in the bowling lane. 

In those days, a bowling establishment with fifty lanes required a 
payroll roster of at least 1,000 pinboys, on whom it had to keep social 
security lists and other bookkeeping records. Finding and keeping enough 
boys on hand took most of an assistant manager's time. It seemed only 
logical that if AMF could develop an efficient automatic pinspotter, it 
would have a product whose potential earnings would greatly exceed 
anything the company had ever recorded in the past. 

There was such a device— an awfully cumbersome one— in existence, 
and AMF undertook to develop it. However, several years of trying to 
develop a commercially practical machine were not encouraging. Then 
came the war, and any further work to solve the pinspotter problem had 
to be left until the end of hostilities. 

At the war's end, AMF had a backlog of orders for its principal peace- 
time products— machinery for the baking industry and for making ciga- 
rettes and cigars. Once that backlog was filled, the company faced a return 
to a business volume not unlike that experienced before the war. Its 
machinery was well-made and long-lasting. Sales of its traditional lines 
of products hardly promised a level of operations which would take full 
advantage of the new economy which lay ahead. 

In 1945 the company announced the formation of a postwar planning 
committee. Automation of the bowling industry still offered a tremendous 
opportunity, and the company set a couple of fine engineering teams to 
work on the automatic pinspotter. 

The engineers finally developed a machine that worked, but the com- 
pany went into production just at a time when costs were skyrocketing. 
It was next to impossible to get materials. It was obvious that the machine 



254 MANAGEMENT BY OBJECTIVES 

could not be produced profitably as it stood. The decision was made to 
start all over again and attempt to produce a commercially satisfactory 
machine, redesigning it with cost reduction in mind. 

This left the company with the immediate problems of how to utilize 
a plant in Buffalo that had been bought to manufacture pinspotters and 
how to improve our earnings in the immediate years ahead when the 
pinspotter would be a drain on our earnings rather than the substantial 
contributor that had been envisioned. 

AMF has always done an important amount of contract manufactur- 
ing. A rapid expansion of this activity, particularly for the government, 
seemed a good solution to the Buffalo-plant problem, and the company 
therefore redoubled its efforts to obtain government work. Particularly, 
it sought a position as a prime contractor in the field in which it excelled 
—the production of highly engineered and designed equipment to make 
industrial production more efficient and living and leisure more enjovable. 

However, it takes time to develop a position as a prime contractor. 
More cash and profits were needed quickly if the pinspotter development 
program was to be brought to a successful conclusion. 

Expansion through Acquisition 

A campaign of expansion was initiated in 1948 (1) to take the company 
into new commercial-growth fields; (2) to broaden the company's earnings 
base; and (3) to enable the completion of the costly development of the 
automatic pinspotter. The company's available funds for research and 
engineering were all committed to the pinspotter and to necessarv im- 
provements in our regular lines. Neither money nor time was available to 
develop still other new products from scratch and then develop a market 
for them. On the other hand, if AMF could acquire going businesses at a 
fair price, it could immediately add their profits to its own and upgrade 
the company's per-share earnings. Also, the company's products ^vould 
be more diversified and the company would no longer be entirely de- 
pendent on the capital-goods market. 

I have mentioned the criteria established in connection with the search 
for new products initiated in 1938. Similarly, definite limitations were 
set forth with respect to the companies AMF would acquire. 

1. Because diversification was the object, any acquisition ^vould have to 
serve a large and growing market closer to the consumer than the market 
already being served. 

2. Because the company's key personnel were fully occupied ^\-ith cur- 
rent problems and plans, any acquisitions would have to be ^veil-managed 

firms. 

3. Because permanent, not temporary, improvement in earnings ^vas 
required, only companies of demonstrated profitability would be sought. 



PLANNING ^^^ 

4. The company's expansion into government work and the expected 
production of thousands of pinspotters to be placed on lease would re- 
quire a very large amount of cash. The company therefore decided not 
to acquire any organization that needed cash and to acquire only those 
that were adequately financed, particularly those that had surplus cash. 
For the same reason, it was decided to buy companies for stock rather 
than cash. 

5. As the company expected to improve its earnings per share as a 
result of the automatic pinspotter, it was not interested in issuing stock 
for an acquisition unless there was a reasonable expectation that it would 
earn considerably more per share on the AMF stock given for it than AMF 
was currently earning. 

6. It was decided that any company acquired should occupy an im- 
portant position in its field and that this field should hold a reasonable 
hope of expansion in the future. 

Results of Acquisition 

Of course, all the companies acquired did not meet all these specifica- 
tions, but on the whole they came remarkably close to doing so. Between 
1945 and 1957 AMF conducted its basic acquisition program. In that 
period, the expansion and improvement of AMF lines accounted for 29.1 
per cent of the increase in dollar volume. Acquisition of new companies 
accounted for 47 per cent of the increased volume, and growth of the 
new companies in AMF accounted for the remaining 23.9 per cent. Thus, 
almost 71 per cent of AMF's improved sales volume was attributable to 
the expansion program in one way or another. 

As evidence of the success of AMF's management planning during this 
period, the company's position in Fortune magazine's list of the nation's 
500 largest American companies (ranked by sales) rose as follows: 

In 1955 AMF ranked 240th. In 1958 AMF ranked 179th. \ ■. 

In 1956 AMF ranked 199th. In 1959 AMF ranked 165th. 

In 1957 AMF ranked 166th. 

Well-managed corporations, however, are not in business to make sales 
just for the sake of making sales. They are in business to make profits. 
They have to make profits if they are going to make progress, and while 
AMF's "sales" standing dropped in 1958 (revenues totaled $231 million 
compared with $262 million in 1957, a decrease of 12 per cent), the com- 
pany's relative position in net profits improved from number 184 in 1957 
to 161 in 1958 and to 139 in 1959. It must be remembered that volume 
is not the only standard for measuring progress. The company's sales 
volume in 1958 was reduced by the sale of marginal or unprofitable 
divisions, but net profit dropped only $1 million. 



256 MANAGEMENT BY OBJECTIVES 

Acquisition Problems 

In pursuing its expansion program, AMF soon learned that in acquir- 
ing a company there are always present possible points of conflict between 
the parent company and the subsidiary. If growth is the principal reason 
for the acquisition— as was the case with AMF— then the closest kind of 
control over the activities of the new subsidiary might have been ex- 
pected. On the other hand, ventures by the parent company into new 
fields implied the wisdom of dependence on the local managements which 
had been operating the independent companies successfully. Too much 
control by the parent company would threaten the initiative and imagi- 
nation of the subsidiary management. Too little control might threaten 
the growth of the combined enterprises. This was the problem of person- 
nel and policy faced by AMF management in its planning for growth. 

AMF's policy was decided in favor of a proper balance between de- 
centralization and control. One of the best means of achieving this balance 
was to form an internal board of directors at either the business-unit 
or business-group level. At least two AMF officers serve as members. The 
boards provide a meeting ground for the top AMF subsidiary manage- 
ment and those of the parent company, and they permit full discussion 
of matters in which the parent company must, if necessary, have the final 
say. 

Corporate Organization. In general, it was the parent company's purpose 
to provide, acquire, or train management and render financial guidance 
and assistance for the benefit of its acquired subsidiaries-and, of course, 
for its own benefit. Under this scheme, the subsidiaries were divided into 
a number of groups, each under the supervision of a senior AMF execu- 
tive with a staff consisting of an engineer adviser, a production adviser, a 
sales adviser, and a financial adviser. Thus each group was almost a com- 
pany within a company, a system which seemed to facilitate both line 
and staff functions and clearly distinguish between the two. 

In connection with the choice between "decentralization" or "control. '" 
we have found that there is still a third way to allow freedom of initiative 
and yet maintain proper supervision over profit performance. For want 
of a better term, this might be called "recentralization," in which a divi- 
sion needing closer supervision is brought into the central AMF manage- 
ment and, after having been straightened out, is again "decentralized," 
to be more on its own responsibility. Since the completion of the expan- 
sion program, we have "recentralized" two acquired divisions inward and 
moved two others "out." 

Head-office Charges. One of the most difficult things for the subsidiaries 
to understand was the question of head-office charges. Obviously, any 



257 

PLANNING ^^' 

organizational system of control adds to the overhead of the company 
and must be allocated somewhere. AMF looked at its group headquarters 
as providing not only a service of control for parent-company manage- 
ment but also, and equally, a service for the benefit of the subsidiary. 
Nevertheless, to relieve the psychological burden of such a charge upon 
subsidiary operations by the parent company, subsidiaries reported to 
AMF management with the head-office charges separated so that a view 
of their profit results was apparent both with and without the charge. 

Personnel Planning. I cite the above example of a seemingly minor aspect 
of management planning so as to highlight the importance of personnel 
planning as related to all other management planning. The morale of 
subsidiary management is certainly an important personnel concern. 
Companies are people first and plans second. And if management of 
people is not properly planned, then the planning in all other parts of the 
business-money, materials, methods, and machinery-will avail very little 
when the results are finally totaled on the balance sheet. Management 
planning includes, above all things, the proper planning of the use of 
the company's most valuable asset, its personnel. Preserving the initiative 
and imagination existing in the subsidiary organization was a paramount 
objective of AMF's planning. Another objective was centralized policy 
and financial control coordinated with the benefits of decentralized oper- 
ation and decentralized profit-and-loss responsibility. AMF succeeded to 
a large extent, I believe, in attaining both of these objectives. 

Marginal Operations. Not all of AMF's acquisitions came off successfully. 
It would have been too much to expect that every move toward expansion, 
during the company's period of rapid growth, would turn out for the 
best. All companies have both high- and low-profit activities, and when 
their capital is not fully employed, they tolerate the marginal operations 
so long as they contribute some net profit for the stockholders. 

However, when borrowing capacity is being strained to the limit and 
the most profitable operation is expanding at an accelerated rate, the 
only way to raise more capital is by the sale of common stock. This move 
the company wished to postpone as long as possible. Under these con- 
ditions, marginal operations could no longer be tolerated. They were a 
source of money from which cash could be extracted internally, instead 
of resorting to the sale of stock. AMF reached this point in 1957 and 
hence sold, liquidated, or realigned six marginal companies and divisions, 
using the cash so obtained to finance more profitable operations. 

Financing the Pinspotter 

The marked increase in AMF's total sales and rental income— from $29 
million in 1947 to $284 million in 1959-was not the only result of the 



958 MANAGEMENT BY OBJECTIVES 

company's planned expansion program. It provided also an increase and 
a stability in the company's earnings which previously did not exist; and 
it provided AMF with a base of assets and earnings sufficient to justify 
the large amount of borrowing necessary to finance the pinspotter. 

The company believed from the beginning that the pinspotter would 
be a big thing, and as the machines were to be leased rather than sold, it 
was obvious that the investment requirements would be enormous for a 
company of AMF's size. 

It was decided early in the game that one of the key requirements was 
to finance the production program through debt as much as possible, so as 
to preserve for the present stockholders the higher earnings that would 
result from a successful development. 

It will be noted that a plan was being mapped out to finance produc- 
tion long before the development program was completed. There cer- 
tainly was no point in spending millions to develop a new product if 
the company was unable, or unwilling, to raise the necessary funds to 
produce and market the product. Moreover, the board of directors would 
not have approved the large expenditure necessary to complete the de- 
velopment if there had not been available a practical financing program 
for the production and installation of the machines. 

Having evolved a plan that would provide a basis for borro^ving, the 
company next had to decide the nature of the borrowing. 

The pinspotters are leased, not sold. When installing rental machinery 
in a new field, the investment in the rented machinery follows a certain 
pattern. You start by installing a few machines, and then installations 
grow at an accelerated rate as the product is accepted by the market. 
Finally, when the market saturation point is reached, the number of 
new machines installed each year falls off, and finally levels off at a 
volume sufficient to provide for replacements and the normal gro^N'th of 
the industry itself. 

The rental income increases each year as new machines are put out on 
lease, but instead of falling off when the saturation point is reached and 
the cash requirement for new machine installations falls off, it continues 
to increase, but increases at a slower rate. The rental income thereafter 
will decline only if new machine installations do not keep up with lease 
expirations. 

This means that in the early build-up period the cash requirement for 
investment in new machines greatly exceeds the revenue from the ma- 
chines, but a turning point is ultimately reached after which the cash 
from rental income is more than sufficient to pay for each year's ne^s' 
machine installations. It is in this period that the loans to finance the 
build-up can be paid off. 

This pattern calls for a rapid build-up of debt until the turnnig ponit 



PLANNING 259 

is reached, and then a payout over ten to fifteen years; in other words, 
short-term-debt bank funds initially, institutional money later. 

The company established an initial $15 million, five-year revolving 
credit with a group of banks. As the program grew, the amount of the 
credit was increased to $30 million, then $40 million, then $60 million. 
Then, when in 1957 we at last reached the turning point and revenues 
exceeded expenditures, the five-year pinspotter loan was refinanced with a 
fifteen-year note issue. 

The pinspotter program is now behind us, and no longer is every major 
corporate decision influenced by its effect on our ability to carry out the 
pinspotter program. Instead, we can now count on a steady and substan- 
tial flow of cash for many years to come. 

' r '"■' 

THE PLANNING DIVISION 

Thus far I have described action as a result of planning, with examples 
of planning failures and successes. But what of the planning function 
itself? How does a company organize for planning, and what are the 
touchstones of successful planning? 

The emphasis which AMF places upon planning is evident from the 
status of the planning division as a separate corporate staff group under 
the direction of a vice president who is responsible for (1) long-range 
corporate planning and the related organizational planning, (2) acquisi- 
tions and mergers, (3) sale of corporate properties, (4) product and market 
analysis, and (5) corporate advertising and special project studies and 
services. The vice-president-planning directs a staff of about thirty people 
in full-time management planning. 

I emphasize the word "full-time" because I want to stress the importance 
of differentiating between management planning and administration. 
There is, of course, a certain amount of planning of a short-term, or 
tactical, nature in all administration. But in business, as in military opera- 
tions, there are essential differences between tactics, pertaining to the 
immediate and local situation, and strategy, pertaining to the longer- 
term situation. Management planning, to be worthy of the name, should 
reach into the future— in concept, imagination, and strategy. In fact, its 
essence is entrepreneurial strategy. 

Planning-division Functions 

To perform its functions properly and realistically, the planning divi- 
sion must start with the present. At AMF it maintains a scheduled orderly 
review of all operations to detect strengths and incipient weaknesses. The 
usual criteria for determining performance concern sales growth, profit 
margins, and rate of asset turnover. In general, optimum performance in- 



260 MANAGEMENT BY OBJECTIVES 

dicates a growth in sales, stable or increasing profit margins, and stable 
or increasing rate of turnover. 

The current performance of AMF and its business units is evaluated 
in the light of the planning division's independent analytical studies of 
long-term trends of the economy as a whole and the various industrial 
groups in which AMF has an interest. Important confirmatory informa- 
tion can be gleaned from a study of the results being achieved bv im- 
portant competitors. 

These investigations and analyses, coupled with the intuition and judg- 
ment of the key management personnel of the whole of AMF in regard 
to the implications of the present and their estimate of the future, lead 
to major decisions or plarming action for the disposition of certain prop- 
erties, contraction in present areas of activity, or expansion in anticipated 
growth fields. 

Each business unit submits annually to the planning division a five- 
year plan of action which sets forth, by year, the goals of that particular 
unit with the major actions proposed to be taken to achieve its goals. To 
provide continuity, the results of the previous five years' performance are 
also submitted. The following is an outline of the more important data 
and information presented: 

Present major product lines and the sales volume in each 
Total industry volume and evaluation of important competitors 
Proposed new major product lines 
Projected unit performance to include: 

Net revenues 

Pre-tax profits 

Assets employed 

Profit margins 

Asset turnover rates 

Return on assets 

Cash flow 
Evaluation of projected unit performance to include: 

Cost of materials in products 

Direct labor costs 

Organization and staffing 

Trends within the industry 

Technological changes affecting products 

Market penetration 
Unit cash requirements for: 

Research and development 

Machinery and equipment 

Buildings 



261 

PLANNING ^^^ 

Other unit requirements for: 
Personnel and training 
Market research 
Advertising 
Product line acquisitions - 

The individual business group's or unit's reports of their projected 
performance and plans are received by the planning division late in the 
year, but prior to the submission to the executive office and the company 
controller of the detailed operating budget for the following year. The 
individual plans are carefully analyzed and consolidated into an over-all 
company projection and plan of action. 

In general, the corporate plan of action consists of the individual unit 
plans, modified as necessary not only by the introduction of corporate 
priorities and goals, but also by the introduction of those programs con- 
ceived at the corporate level (usually in the areas of major new product- 
development programs and corporate acquisitions). 

The corporate plan of action is then presented to the company's 
long-range planning committee, which, including the members of the 
executive office of the company, decides on the major aspects of the over- 
all plan presented. The long-range planning committee includes the views 
of objective and experienced outside advisers. 

Such intensive and constructive reporting and analysis permits top 
management to review the detailed operating budget for the succeeding 
year in the light of the longer-term future as well as the historical data. 
It is here, then, that it is assured that near-term actions or tactics are 
consistent with the opportunities being established for the future. By 
emphasis on planning at all important levels of management, the corol- 
lary benefit of an improved ability to gather the proper and needed "in- 
telligence" for sound and aggressive daily action is also attained. In- 
stinctive views for action and timing are very much a part of the total 
process. 

The close relationship of the reasoning and justifications supporting 
corporate acquisition actions is the basis for including this responsibility 
in the planning division. This division, which also has the functions of 
product and market analysis and a major role in the formulation of over- 
all company goals, is in a strategic position to evaluate the financial facts 
concerning a potential acquisition-whether it be a product or a company 
—the market outlook, distribution, technological assets, and other related 
matters. Where specialized professional assistance is needed, it can call 
upon other elements of AMF for this service. 

The same reasoning applies to the assignment of corporate advertising 
responsibility to the planning division. The integration of all the factors 



262 MANAGEMENT BY OBJECTIVES 

^vhich lead to a successful corporate or institutional advertising program 
or promotion can be performed effectively by this division in view of its 
major role and knowledge in related areas. 

Instinct Is Still Needed 

It must not be inferred tfiat the smooth functioning of a planning 
division places management planning upon an assembly line and permits 
everyone in management except those in the planning division to confine 
his efforts solely to administration. Nor does the formalization of man- 
agement planning into the regular procedures and manuals of a planning 
division in any way restrict opportunity for the free-wheeling man of 
imagination who has the knack of creating new management ideas, ne^v 
products, new methods, and new markets. American industry can still use 
the "uncommon man." It can still benefit by the type of leadership once 
associated with the old-time "captains of industry." 

If some of the old captains of industry lacked an elaborate lexicon for 
"management planning" in the old days, they more than made up for it 
in the indefatigable pursuit of their own profit. They knew everv inch 
and cranny of their businesses, and in many cases they personally knew 
every workman in their shops. The size and complexity of modern indus- 
try prevent any such approach to business planning today. But the need 
for facts on which to base plans is still a basic principle of management- 
planning success— and it will never change. There is an unfortunate 
tendency today to replace deeds with words. The Andrew Carnegies and 
Henry Fords and Walter Chryslers perhaps never talked much about 
"setting up goals for development" or "programming of products and 
services" or "programming of other functions" or "carrying out these 
programs" or "planning the process of decision making." They would 
have wondered what was meant by such effusive language. They would 
simply have measured their task by finding out what would sell, making 
it so it would sell, and operating so they could make a profit. Of course, 
their task was simplified by the fact that the government did not tax 
away 52 cents out of every dollar they earned. Nor were the problems of 
research and development, the complexities of technology, and the ex- 
tensiveness of competition as great as they are today. 

Nevertheless, today's exhaustive procedures for finding the facts and for 
analysis and forecasting of trends do not always produce solutions or 
plans whose perfection can be assumed. Not all the failures of planning 
are negative failures. Many times they are failures of omission as ^vell as 
commission. A good example of this truth lies in AMF's experience ^s'ith 
its acquisition of DeWalt, Incorporated. 

This company made a small radial arm sa^v ^vhich had been marketed 
to mill supply houses, woodworking machinery dealers, contractors' 



PLANNING 263 

equipment suppliers, and lumberyards. It sold for more than $300. Not 
long before AMF became interested in the company, DeWalt had com- 
missioned an exhaustive market survey and product evaluation to be 
made by a nationally known firm of management consultants. DeWalt 
had been considering the possibility of selling its saw to the home-work- 
shop market. 

The management consultants reported, relative to the home-workshop 
market, that "over the long run any tool that costs more than $100 had 
little chance for success." They recommended that DeWalt regard the 
home workshop as a secondary market until it could "overcome the price 
barrier." 

AMF's management, weighing and then giving a different dimension 
to the admittedly factual research of the management consultants, put 
an "instinctive" finger to the commercial wind and came up with a 
different conclusion. AMF— through "instinct," feel of the market, or 
call it what you will— decided that America's home workshoppers would 
pay more than $100 for such a saw if it were aggressively sold. Today 
DeWalt is one of AMF's busiest and most profitable divisions. In this 
case, the management consultants had the research and the plan which 
said "No." But AMF had the people who said "Yes." Which brings me 
back to the fundamental element in all good management planning— 
people. 



THE NEED FOR PEOPLE 

The importance of people in planning cannot be overstated. We fre- 
quently hear of the term "product mix" in reference to various lines of 
goods sold by a firm. But we seldom hear of the term "manpower mix"— 
yet the manpower mix is even more important than the product mix. 
The success of the product and profit mix depends upon it. 

This was brought home to me sharply one day when a friend of mine, 
describing conditions in his own company, said, "We spend more time 
at our board meetings talking about our financial and capital facilities 
programs than we ever do about our human capital requirements. I 
wonder how much farther we would get if we devoted as much time to 
our manpower assets as we do to our dollar and machine assets." 

We consider engineering and research to be the heart of our future 
success. Yet increased budgets alone will not achieve results; it is the 
caliber of our technical personnel, the incentives and motivation we 
provide them, and the mix of skills we engage to meet the competition 
of business and the needs of our population ten, twenty, and fifty years 
down the road of the future. This is one of our most serious challenges 
in planning— the planning of our people. It is a problem for all American 



264 MANAGEMENT BY OBJECTIVES 

industry, especially at this time when our system is being challenged 
economically, politically, and militarily by the communist-dominated 
countries. 

THE PLANNING AUDIT 

Sound management planning is not assured unless it is supplemented 
with what we call the "planning audit." In a rapidly expanding company, 
with many new and ambitious divisions, new "plans" are likely to 
spring up quite frequently. Each division wants to use capital to realize 
its plans. 

As an example of the planning audit, we have developed a method 
to assess requests for capital and to audit the use of capital if it is made 
available. Capital expenditure programs must be approved by the board 
of directors of each subsidiary concerned. Every request for major capital 
expenditures must be accompanied by a justification based on the cost 
of operating with the new equipment as compared with the old equip- 
ment. Unless the calculation shows a decided advantage in favor of the 
new equipment, the purchase is disapproved or deferred. 

In every case where the purchase is approved, there must be a subse- 
quent make-good report, showing how actual experience ^vith the new 
equipment compares with the calculation on which the appropriation was 
approved. It is noteworthy that this simple analysis, coupled ^vith the 
established procedure of the planning audit, induces realistic thinking 
in the early consideration of capital expenditure proposals. 

Thus auditing of plans and specific programs, such as sales, is just 
as important as measuring sales against quotas or auditing the books of 
account. And speaking of accounting, this management service-and its 
importance-must not be overlooked. As any company grows, the volimie 
of fiscal data to be recorded and analyzed creates complexity and out- 
grows manual methods. The old hand methods may suffice for a companv 
under one-man control, with sales of several million dollars a year. 
Beyond this, however, a more elaborate system is required. As sales mount 
higher, automatic tabulating and computing systems become a necessitv. 
AMF's accounting practice is flexible, depending upon the varied 
requirements of our groups, units, and subsidiaries. In some cases it has 
been preferable to continue the use of manual accounting procedures. 
In others, machine equipment has been required. In each case, however, 
the standardization of reports and procedures is emphasized. 

THE PROMISE OF THE FUTURE 

One final word to the talented young business student whose natural 
flair for entrepreneurial success makes him impatient with some of the 



PLANNING 265 

hard digging for facts and the long statistical computations that must 
be made in the process of planning. If he is inclined to think that 
management planning takes "all the romance" out of business, if he is 
inclined to feel that we have turned an exciting, pulsing adventure into 
a prosaic business of slide-rule pushing behind a desk, let me assure 
him he need have no fear. 

The marvelous and time-reduced frontiers opening up for creative 
business management planning in the years ahead dwarf the imagination. 
The possibilities in mechanization are only beginning to open up a 
whole new world of service to the nation. And the potentials of nuclear 
and other energies— as yet not even dimly realized— make the business of 
management and management planning one of the most exciting ad- 
ventures in the whole business world. Our world will never become so 
mechanized or our lives so ruled by science— or our management so 
organized by procedures and "policies"— that the creative individual, 
from the inspiration arising within his imagination and his rare arts of 
persuasion, cannot find his happy place of high and profit-making achieve- 
ment in the thrilling story of American industry. 



'^ 




Harold F. Smiddy 

VICE PRESIDENT 

GENERAL ELECTRIC COMPANY 

NEW YORK, NEW YORK 



The distinguished business career of Harold Smiddy is paralleled by 
his outstanding contributions to the scientific management movement. 
For the past twelve years he has been a vice president of the General 
Electric Company, in charge of management consultation services for 
nine of these years. And throughout his business life, he has been an 
active participant in a great number of management and professional 
societies. 

Harold Smiddy was born in Southborough, Massachusetts, and at- 
tended both grade school and high school there. He then entered 
Massachusetts Institute of Technology in Cambridge, Massachusetts, 
and received a B.S. degree in electrical engineering in 1920. 

The first twenty-two years of Mr. Smiddy's business career were 
spent in the public utility field with Public Service Electric Cojnpany 
of New Jersey and West Penn Power Company and the Electric Bond 
6- Share Company. 

After five years in various operating and commercial positions in 
the Services activities of that company, he became a part of Ebasco 
Services Inc., which took over such Services work as a subsidiary in 
7955. Until 1942 he headed first the Sales Dept., then the Operation 
Section, with management consultant duties in the main. He served as 
a director of Ebasco Services Incorporated from 1940 to 1942. He then 
joined Booz, Allen 6' Hamilton, management engineers and con- 
sultants, and served as a general partner of the firm until February. 
1948. 

Mr. Smiddy began his career with the General Electric Company in 
1948 on the president's staff and served successively as general man- 
ager of the chemical department and then general manager of both 
the chemical department and the air conditioning department. He 
assumed his present position in March, 19^1. Mr. Smiddy was a dircc- 

Photo by Burns Photography, Inc., Schenectady 



266 



tor of the International General Electric Company from 1948 until 
ip^2, when it was merged with the parent company; he is also a former 
director of the General Electric Credit Corporation and is a director 
of the 50 Sutton Place Corporation in New York City. 

Long recognized as an authority in many areas of management, Mr. 
Smiddy has been awarded the Gantt Medal by the American Society 
of Mechanical Engineers, the Taylor Key by the Society for Advance- 
ment of Management, and the Wallace Clark Award by the Council 
for International Progress in Management. Mr. Smiddy has been active 
in CIOS (Comite International de U Organisation Scientifique) for 
many years and, in ig^i, headed the United States delegation to the 
Ninth International Management Congress in Brussels, Belgium. He 
was also United States member of the executive committee from ig^i 
to ig^y; member of CIOS long-range planning and policy committee, 
19^^ to 1954; member of CIOS management committee, 19^4 to i9^y; 
first vice president of PACCIOS {Pan American Council of CIOS), 
19^4 to 19^6; and was elected honorary councillor of CIOS in 19^']. 

In addition, Mr. Smiddy is one of the four American members of the 
International Academy of Management and is active in the American 
Institute of Electrical Engineers, the American Society of Mechanical 
Engineers, the American Management Association, and the American 
Ordnance Association. He was made a life member of the Academy of 
Political Science in 19^6 and is a registered professional engineer in 
New York, Illinois, and Massachusetts. 

Mr. Smiddy is married and resides in New York City. - , • } 

April, i960 



CHAPTER 1 1 

Deciding 



Nearly everyone in a top-management ^ position recognizes the intense 
and continuing opportimity, need, and pressure to make decisions. 

The sheer volume of important yet diverse matters that require decid- 
ing can be so overwhelming that some men are driven beyond reasonable 

1 Note— "Top Management" is a frcquenLly used phrase, and yet the frequency of 
its use, with so many different meanings, seems to have created considerable aml)iguity. 
For instance, it has been used variously to refer to people: 

All of the "officers" of a corporation 

267 



268 MANAGEMENT BY OBJECTIVES 

limits of endurance. Others find themselves spending all their time and 
attention deciding on relatively less important matters of the moment, 
while completely neglecting more important long-range considerations. 
Still others find that for lack of time to obtain and consider needed 
and relevant information, important matters are left undecided, with 
consequent deterioration of morale and loss of operating efficiency. Fre- 
quently, to avoid the dire consequences of indecision, important decisions 
are made with inadequate consideration of the information that is avail- 
able, with the consequent risk that many of them will be bad decisions. 

Moreover, lack of a decision often results in merely continuing past 
practices, thus possibly missing opportunities for progress and an im- 
proved competitive position. 

"Deciding" can thus be a crucial bottleneck, especially in the work of 
the managers at middle and higher levels in the organization structure of 
a large corporation. Whatever ways can be found, therefore, to enable 
managers to devote the needed time and attention to the decisions that 
are most significant to both the short- and long-range future of the 
business, to seeking and obtaining needed information, and to the 
development and consideration of a range of worthwhile alternatives are 
of vital concern. 

Many experienced and thoughtful presidents, general managers, and 
other higher-level managers have come to realize that the quality of de- 
cision making would be vastly improved if most managers— particularly 
higher-level managers themselves— would make far fewer decisions, re- 

The "owner/operator" of a gasoline station 

Policy-making "senior" officers in the Department of Defense 

The otherwise unidentified "group" who "really run" any business 

Whoever it is at the "top" who make up the opposite of "labor," etc. 
It has also been used variously to mean: 

A body of knowledge needed and used by one or more of the above 

Techniques or methods used by higher-level "managers" 

The "art of entrepreneurship," or 

The "profession" that has succeeded it in today's publicly owned corporation, etc. 

Widespread apparent acceptability of the term "Top Management" may be in part 
due to this very ambiguity. There is so77ie — but often diverse — meaning in it for every- 
one; yet this tends to limit its usefulness for serious discussion where both precision 
and consistency are needed. Faced with this problem, two alternatives are available: 

The term can be defined precisely in some one sense that is used consistently in the 
text 

The term can be avoided, in favor of other words more definitive of exactlv who or 
what is being discussed in each instance 

Since the first alternative may still lead to later different interpretations of the 
Avords that different readers believe they "know" so well, the latter choice has been 
made, for this chapter. 



DECIDING 2^^ 

serving more time and a better atmosphere for unhurried contemplation, 
and consequently for more deeply decisive treatment of matters rightly 
and legitimately left to ^//e/'r judgment. 

The key to better "deciding" is thus to decentralize as much responsi- 
bility as is feasible so as to have to make fewer decisions, but to concen- 
trate on, and bring greater competence and better information to, the 
more important ones that thus remain to be made. This chapter accord- 
ingly outlines both the process of "deciding" and also a philosophy of 
managing and organizing through which competent "deciding" can be 
done throughout the organization. 

The broad subject of "deciding" is covered in five parts: 

What Is Deciding? The relationship of "deciding" to freedom, creativ- 
ity, responsibility, information, and values. 

Organization as a Decision-making Structure. Criteria for selecting, in 
an organization structure, where specific decisions can best be made; and 
the need for decentralization of decision making, especially in an environ- 
ment of increasing complexity, characteristic of a time of accelerating 
change. 

Assuring Responsible Decision Making throughout the Entire Structure. 
The need for managing by objectives and for sensing, understanding, 
and communicating the common interests and common purposes which 
bring people together in organized work relationships. 

Use of New Machines and Techniques for Processing Information. The 
use of new data-processing and computing machines as well as "scientific- 
management" techniques, and how all these fit into the decentralized de- 
cision-making structure. 

Neiu Order of Deciding. The need for and the challenges of a new 
order of "deciding," especially by those in positions at higher levels in the 
organization structure, w^ith the appropriate application of decentralized 
decision making and concomitant decentralization of information. 

WHAT IS DECIDING? 

"Deciding" involves bringing to a resolution, making a specific determi- 
nation to achieve a result, and then at least defining some of the limita- 
tions on how to achieve that result. "Deciding" thus is related to the 
future. It involves making a choice and selecting from among alternative 
possibilities. 

"Deciding," therefore, implies freedom— h^^dom. to choose from among 
alternatives without externally imposed coercion, and freedom to con- 
ceive alternatives from which to choose. 

Freedom to decide is not unlimited, however. Decisions are made 



270 MANAGEMENT BY OBJECTIVES 

within boundaries set up by many constraints, including the follow- 
ing: 

Prevailing and unalterable features of the total social, political, eco- 
nomic, and technological environment 
The individual's interpretation of the legal, moral, ethical, and reli- 
gious limits to possible courses of action 
The totality of the "culture" that has been "inherited" and "learned" 
by the individual, at least to the extent that he cannot perceive that 
many possible courses of action are unavailable to him as a result 
of his subconscious interpretation of "custom" 
Both decision making and freedom involve more than choice alone. 
Making choices presupposes alternatives, from among which a choice 
can be made. It is essentially judicial, a matter of judging the merits of 
specific alternatives (that is, becoming aware of and weighing the similari- 
ties and differences among them) and choosing a specific alternative on 
the basis of these merits. 

Decision making has a creative aspect as well as a judicial aspect. The 
visualization of possible alternatives is as much a part of this over-all 
process of deciding as is the actual "choosing." Highly creative human 
imagination in visualizing alternatives may, in fact, be as significant as 
the judicial wisdom used in choosing from among them once the alter- 
natives have been visualized. Many a manager in business, competent 
at choosing from among some alternatives, has been left behind by a 
competitor who had the creative imagination to consider ?nore, different, 
and better alternatives. 

The creative aspect of deciding is also closely related to freedom. It 
involves the freedom to consider possibilities beyond the confines of 
tradition, established practice, or a narrow channel dictated by someone 
else's assumptions about where promising alternatives may be found. 
It involves the freedom to perform rather than to conform. Many ob- 
servers have noted that human creativity thrives best in a climate of 
freedom, including freedom from the social pressure of conforming 
blindly or unreasoningly to the "expectations of the group." 

With the creative aspect of "deciding" functioning well, and ample 
imaginative and good alternatives from which to choose, the judicial 
aspect then needs to be considered. How is the final choice made? 

The judicial aspect of "deciding" involves a keen balancing of values in 
light of the facts and information available and in light of the likely 
impacts and consequences of pursuing each of the alternatives. 

"Deciding" is thus a matter of value judgment and of. wisdom. The 
quality of value judgments will be improved to the extent that they are 
influenced by factual rather than erroneous or inaccurate information, 



DECIDING 271 

and by a genuine understanding of the possible chains of cause and 
effect that form the basis of estimating the likely impacts and conse- 
quences. 

Effective "deciding" is thus dependent on: 

The availability, accuracy, organization, and use of relevant informa- 
tion 

The predictive value of the principles used to estimate possible impacts 
and consequences 

The degree of commitment involved 

Since the judgments used in "deciding" are value judgments, effective 
"deciding" also requires a well-developed sense of values. This, in turn, 
needs to be oriented toward the objectives of the particular business to 
assure that it will survive competitively and remain profitable. As 
brought out later in this chapter, these values need to reflect the com- 
mon interests and common purposes that bring customers, share owners, 
employees, suppliers, and the general public— including government as 
the public's representative— together in the particular relationships that 
enable the business to survive and prosper. They are thus values that 
reflect the "balanced best interests" of these interrelated groups. 

Effective "deciding" requires a balance in timing: of deliberate, care- 
fully planned, analytically determined judgments; of rapid, decisive, in- 
tuitive judgments; and of wisdom as well as mechanics in perceiving and 
evaluating both similarities and differences. 

When Must a Decision Be Made? 

Many situations do not require immediate "decision," but rather re- 
. quire the best and most careful consideration of available information. 
When such matters are reviewed, the significant "decision" of the moment 
often does not attempt the "final answer," but considers whether enough 
information has been collected, whether it has been arranged in a form 
that reveals its significance, whether sufficient alternatives are being con- 
sidered, or whether some new approach should be tried before attempting 
to reach a final decision. Frequently the only "decision" that can be made 
is to seek additional information or to study the matter from another ap- 
proach. 

In other situations— continually confronting each man faced with busi- 
ness decisions— there is the need to "get on with the job" with the least 
practical expenditure of company resources. Additional information costs 
time, effort, and money. If the probability of a better decision does not 
justify such costs, and if the immediate need for some decision on which 
to proceed outweighs the possibly "better" decisions that migJit be 
reached with more information, the most satisfactory course of action may 



272 MANAGEMENT BY OBJECTIVES 

be to make the best decision that can be made immediately on the basis 
of the information at hand. 

Cost and risks entailed in not making a decision need to be weighed 
frequently against the cost and risks entailed in making some decision. 
The balance will occur differently as situations differ. Typically, there 
will be a blend— oi highly intuitive decisions made rapidly as the needs 
arise, and of deliberate, planned step-by-step analytical and judicial de- 
cisions where months, or even longer, are spent assembling and then con- 
sidering the pertinent information and differing viewpoints. 

Appropriate balance between such extremes, including selection of 
matters to which each approach applies, is itself a part of "deciding.' It 
is a balance best resolved when each individual is "on top of his job,'" 
rather than driven by it. It is therefore a balance that can better be 
achieved— by higher-level managers in particular— if the mass of repetitive 
or routine decisions of lesser consequence can be cleared away to give 
time for careful consideration of the broader, longer-range, strategic, high- 
impact decisions. Such decisions properly need to be made at high levels 
in the organization structure because of their multifunctional or environ- 
mental complexity, their extensive futurity or uncertainty, and their rela- 
tive irreversibility, once made. 

Because value judgments are made by considering the likely conse- 
quences of alternative courses of action, there is a responsibility aspect of 
"deciding." A person is responsible when he is capable of determining his 
own acts, when he is capable of being deterred by consideration of 
undesirable consequences or inspired by consideration of desirable conse- 
quences. Because an individual needs freedom to make decisions, he also 
becomes responsible for his decisions. Thus the freedom referred to 
earlier is not license to do as he pleases. It is responsible freedom— not 
"responsible" in some vague, impersonal sense, but characterized by the 
responsibility to achieve results, personally and voluntarily assumed. As 
Clemenceau put it: "Liberty is the right to discipline oneself in order 
not to be disciplined by others." 

Thus "deciding" is resolving, or achieving a specific determination 
regarding a course of action. It implies creative visualization of alterna- 
tives and exercising a choice of the specific alternative that is most likely 
to achieve desired results, giving due consideration to the facts and 
information applicable and the likely consequences and values associated 
with these. Exercising a choice requires freedom; giving consideration to 
likely consequences implies responsibility. "Deciding" thus involves the 
responsible exercise of freedom. 

Deciding Is a Human Process 

These considerations emphasize that "deciding" is exclusively human. 
It is human choice, human freedom, and human responsibility. "Decid- 



DECIDING 



273 



ing" is an act of a human will, of that power of a human mind to decide 
upon and direct its energies to carry out a chosen course of action; and 
the "mind" is itself the uniquely human set of consciousness, contempla- 
tion, thought, opinion, and feeling. 

The human "mind" thus embraces feeling, or emotion, as well as 
thought. It covers more than intellect or reason alone. For it is through 
the total capacity of the mind— through emotion, opinion, and belief, as 
well as intellect and reason— that the mind has the uniquely human 
capacity for value judgments, as contrasted with simpler number judg- 
ments or mere magnitude comparisons. 

Every act of every human being in an organization can be considered 
the result of a decision— oi an operation, either conscious or reflex, of 
an individual's mind. To the extent that an individual is deprived of the 
use of his own mind and his own judgment within the area of his 
particular competence, he has been dehumanized; and this is inconsistent 
vv^ith the respect for the worth and dignity of every individual in the 
enterprise that underlies our concepts of a free society and a free- 
enterprise business system. 

"Deciding" is thus a uniquely human action or process. In the sense 
that the term is being used in this chapter, it is something that only 
human beings can do. It is furthermore something that every human 
being can do within his own area of competence and assigned— and 
voluntarily accepted— responsibility. Since people are the most precious 
assets of a business, "deciding" is the heart of the uniquely human con- 
tribution that every individual needs to make to the fullest if this 
precious asset is to be effectively utilized. 

Summing up, then, a basic definition of managerial decision making 
includes: 

Exercising judg?nent and making reasonable, objective, and timely de- 
cisions to effectuate managerial work and progress 

Taking reasonable risks confidently, competitively, courageously, and 
on oion responsibility 

On the basis of facts and information available, choosing wisely from 
among possible alternatives, as responsibility and need for a decision 
arise 

ORGANIZATION AS A DECISION-MAKING STRUCTURE 

Since all human work in the organization involves making decisions 
in a designed and designated area of competence and responsibility, the 
organization structure can itself be viewed as also being a decision-making 
structure. It is, in this sense, the guide to an orderly way of defining the 
specific kinds of decisions that are the responsibility of each position 
in the organization. 



274 MANAGEMENT BY OBJECTIVES 

Such a decision-making structure can be understood more easily by 
considering two propositions: 

Decisions are made only by individuals, not by groups. 
All individuals, rather than only managers, make decisions and need 
to do so responsibly. 

Decisions Are Made by Individuals, Not Groups 

The first of these propositions is particularly timely in light of an 
apparent movement away from personal to so-called "group" responsi- 
bility. "Togetherness," "the lonely crowd," "other-directedness," and 
various other phrases have been coined to describe an only too widespread 
drift toward conformity— a kind of flight from "apartness" even to a 
degree where truly personal creativeness and responsibility are sub- 
stantially abdicated. 

Our free-enterprise system has derived, and should continue to derive. 
its principal success from individual initiative. It depends on the indi- 
vidual's willingness to take risks to achieve results and to be responsible 
for and accountable for those results; on free, competitive markets; and 
on opportunity for individual private economic gain— or loss. Continuing 
success of the competitive free-enterprise system, as progress in technology 
and corresponding changes which increase the complexity of the social 
structure take place, will depend more than ever on our ability to con- 
tinue to tap the initiative, creative innovation, and responsible exercise 
of freedom of individuals. 

The spirit and progress of our American heritage have been based on 
the desire of individuals to perform rather than to conform. It is per- 
formance, not conformity, that leads to leadership and progress as against 
copying or stagnation. 

If decision making is, as stated earlier, responsible exercise of freedom. 
what is a "group decision"? Who is responsible? Who is free? ^Vho is 
coerced by "group pressure"? Who is accountable? Doesn't the "group.'" 
in fact, provide a much too convenient refuge for each individual to 
"duck" his personal responsibility for facing up squarely to tough de- 
cisions? 

In the final analysis, isn't every decision by a "group" really a decision 
by one or more individuals in it? And if it isn't also a decision of each 
of the other individuals in the group, have these others made their 
own decisions and stood up for them and been outvoted? Or have thev 
abdicated personal responsibility in response to "pressure" from the 
group? 

Representative democratic government at its best is not group action 
in the sense that individual voters or representatives are submerged in a 



DECIDING ^'^ 

"group." Each is acting on his own initiative, making his own decisions, 
for which he is personally responsible and accountable. The results of an 
election or the actions of a legislative body represent the aggregate of 
many individual decisions for which specific individuals are responsible. 
The even more "democratic" action of a free, competitive market (more 
democratic because of the far more numerous opportunities of each 
individual to "vote" by buying or not buying, selling or not selling, 
choosing one product or opportunity in preference to others) similarly 
represents the aggregate of many individual decisions in which each is 
free to choose responsibly according to his own preferences. 

Business that operates within the checks and balances of free markets 
is thereby already governed by this "more democratic" choice of the 
individuals affected. Business responsibilities thus can best be assigned 
directly to competent individuals who are themselves responsible for 
seeing that their decisions integrate the viewpoints of such others as are 
appropriate. Business decisions, therefore, do not ordinarily (outside of 
legal actions of the board of directors) require the mechanics of "voting" 
to achieve an aggregate expression of many individuals. Each decision 
area-and so, finally, each decision-can be specifically defined as the 
responsibility of a specific position. The incumbent of this position is 
personally and individually responsible and accountable for the re- 
sults and the consequences of the decisions so designated as his respon- 
sibility. 

To the extent that each needed kind of decision in a business organi- 
zation has thus been clearly visualized and designated to fall in the 
scope of a specific position, and to the extent that this assignment is 
known both by the individual in that position and also by others affected 
by the decision, then an organization structure also serves as a clearly 
understood decision-making structure. Authority and responsibility are 
commensurate and coterminous. 

Even an organization structure which has clearly and fully met these 
requirements as a decision-making structure can still be inadequate to 
the task. An appreciable portion of the total decisions may have been 
structured in inappropriate places. Furthermore, in designing the organi- 
zation structure, adequate allowance may not have been made for those 
ideas (and hence, needed decisions) which are unforeseeable at the time 
of designing the structure. Yet these are the unpredictable-yet expected 
-imaginative, good ideas that need to be encouraged, released, and 
used, ideas which arise precisely because of the imagination and creative 
capacity inherent in other members-indeed, in every member-occupying 
every job in the organization structure. 

In this sense, such "unpredictable" ideas also need to be anticipated 
and allowed for, and then utilized in all their imaginative usefulness. 



276 MANAGEMENT BY OBJECTIVES 

Such ideas should not be viewed as disrupting disturbances, just because 
they were not explicitly foreseen. 

All Members of the Organization Make Decisions 

To consider the particular positions from which specific kinds of de- 
cisions can best be made, the second proposition— all individuals, rather 
than only managers, make decisions and need to do so responsibly— needs 
to be thought through. 

There are two irreconcilably contrasting views of ^vhat a "manager" 
should be. A little exaggeration of each of these tersely brings out the 
differences in these views. 

One view is that of an aristocratic "master" with other men, his sub- 
ordinates, to multiply him— io increase his capacity to effectuate his 
ideas, his aims, his work, to be for him additional arms, legs, and even 
brains. This vision comes perilously close to the concept of an "elite" 
and its slaves, of a dictator and his subjects, of classes of human beings 
with superior and inferior human dignity and identity. 

The other view is that a "manager" is one ^vhose o^vn work is to lead, 
but to lead by inspiring or persuading, by serving, by teaching. This is 
setting a cli?nate of freedom and initiative in which both he and also 
the other manager and nonmanager fello^v ^vorkers can recognize their 
common interests and pursue common purposes rooted in those common 
interests. It is leadership in which their thinking has had a part in the 
formulation of purposes or objectives for the enterprise or component 
being managed, normally before making the managerial decision estab- 
lishing such objectives, as the target for the creative ^vork, performance, 
and profitable results for all concerned. 

In this second view, the work of the "manager" consists in blending 
thought and action in decision making to secure balanced results through 
the specific but different work of other people— in whatever fields of 
functional activity their respective efforts are focused— to get results chieflv 
through their own direct efforts. 

In our free, competitive-enterprise society, this is ^s'ith the clear under- 
standing that both they and the manager are acting Tvith initiative, self- 
development, self-discipline, and competence as to both their personal 
work and their voluntary teamwork and two-way communication. 
Further, both are seeing the individual job and its relationships to the 
whole enterprise, imaginatively and in true perspective, consistent ^dth 
the current and potential economic, social, and political environment in 
which the business is being operated. 

The differences between these two alternative views are deeply sig- 
nificant. In the first view, there were classes of human beings ^vith 



277 

DECIDING ^' ' 

superior and inferior human dignity. This, of course, is not in keeping 
with our American beliefs in the freedom and the dignity of every 
individual. 

It also has operating difficulties. It inherently pushes all "important" 
decisions toward, or up to, the top. It tends to separate personnel of the 
organization into "managers," who think and crystallize their thoughts 
into "decisions," and into mere ''doers," who simply carry out decisions 
made by others. 

The usual result of such a separation is to overload those at the top 
who are expected to make all the significant decisions, while failing to 
make use of the vast decision-making potential of those in jobs in other 
parts of the organization structure. Such a course becomes increasingly 
unworkable, because the sheer knowledge required for today's complex 
business decisions is spread too widely for any small "manager corps" 
either to assimilate it or to monopolize it. 

Responsibility for Deciding Must Be Decentralized. There is little choice 
in today's successful business organization but to have the great bulk of 
all decisions made by the nine-tenths of the individuals in the organiza- 
tion who are not managers but who are, individually, free, creative 
human beings with minds, reason, and feelings of their own. 

This, of course, is decentralization of the responsibility to make de- 
cisions; and it requires the second view, or vision, of what a "manager" 
should be, the view that both the manager and the functional individual 
contributors-or nonmanagers, as the logical differentiation-act with 
personal initiative, creativeness, and uniqueness of individual human 
spirit as well as reason and judgment. 

Such decentralization of decision making unburdens the manager of a 
myriad of essentially wo^imanagerial decisions that otherwise would be 

pushed his way. He no longer tends to be run by his job, but can get 

on top of it and run it instead. And he can devote his time to the 
significant things that a manager should do, including the job of seeing 

that the organization structure-as to all its components and jobs and 
relationships-is consciously designed to decentralize maximum feasible 

decision making to each of the individuals who do the organization's 

work. 

Objective criteria are needed, however, in order to determine what is 

meant by "maximum feasible degree" in the decentralization of decision 

making. One concise statement of this is: 

The determinant position level for responsibility and authority to make a 

particular decision should be that organizational level nearest the work where 

both the needed skills and competence, on the one hand, and the needed iu- 

formation-embr^icing understanding of both direct and environmental probable 



278 MANAGEMENT BY OBJECTRTS 

impacts of the decision — on the other hand, can reasonably be brought to exist; 
so that such information and understanding can be brought to bear in choosing 
wisely from among possible alternatives, or risks, as responsibility and need for 
decision arise. 

This gives real meaning to decentralization. It provides a goal well 
beyond the "divisionalization" of the top structure of a large company. 
To many people, even today, the concept of decentralization merely 
means the classic type of centralized managerial authority, with its in- 
herent "top-down" approach, applied to smaller and dispersed com- 
ponents of people, rather than to very large, collective organizations, 
either states or industrial corporate enterprises. 

That is, after all, one tenable concept of "decentralization." On the 
other hand, it merely represents the centralist— or authoritarian— philos- 
ophy, unchanged in nature and restrained only by limiting the scope of 
its application, particularly as to the number of people or areas so 
"governed." 

In itself, this would of course result in dispersion, permitting a better 
"balance of power." Presumably, this would be achieved through the 
resultant limitation and avoidance of the potential bad consequences of 
overextended and even more centralized power. Hence, even such limited 
"decentralization" is essentially desirable, rather than the contrary, con- 
sidered only by itself. 

If this were all that is desired, it would hardly represent any basic 
change in philosophy of the relationships among the individuals involved. 
It would merely represent an application of authoritarian philosophy on 
a more controlled and limited basis. But such limited area of impact 
would, in no fundamental sense, mean abandonment of "rule" by com- 
mand or dictation from the top under this organizational approach. 
There would be no concept of leadership by inspiration and persuasion to 
get voluntary initiative and participation from the "followers," no less 
than the "leaders," in progressing toward jointly held common interests 
and shared purposes. 

It is in this latter philosophical direction that deeper "decentralization" 
may be sought. In this sense, decentralization would mean a sincere 
change from one kind of philosophy to another, rather than application 
of the same philosophy but on a more limited scope. 

The basic concept ot this deeper kind of decentralization, then, as a 
philosophy, is a system ot leadership in which both managers and 
their professional and other worker associates define their common 
interests; translate these into common purposes, objectives, or goals; and 
then initially and voluntarily accept responsibility and cOmmensinate 
authority to make their personal decisions, at whatever level of the organi- 
zational hierarchy, in the interests of the over-all enterprise and not 



DECIDING 279 

merely in the interest of their individual selves, or individual jobs, or 
individual organization components. 

This involves a genuinely different philosophy, namely, that of accept- 
ing responsibility to act and do things right, in the first place, on one's 
own initiative. It is from this philosophical foundation that correspond- 
ing effects can be obtained in the form of creative productivity, low- 
cost operations (whether of business or government or labor union, or 
church, or university, or what-have-you), and of deeply personal satis- 
factions. 

But such full decentralization involves more than decentralization of 
decision-making responsibility. Being "close to the scene" is no guarantee 
of having adequate information. 

Information Must Be Made Available. Genuine decentralization requires 
widespread transmission of significant information, so that the informa- 
tion and understanding required for sound decisions can be brought to- 
gether with the needed skills and competence. It requires designing 
individual positions with the specific, personal responsibility to seek, 
obtain, and use vital information where this is needed to make particular 
kinds of decisions. And it requires continual refinement of the "informa- 
tion system" of the business in order to have more useful, pertinent, and 
appropriate information made available— and promptly— at all the various 
points of decision. 

Part of the current explosive expansion of technology involves an 
"information and communication revolution." It is probably still largely 
ahead, yet clearly enough in sight so that for the first time in history there 
can be visualized both: 

The necessary information, and 

The means of rapidly communicating it for truly decentralized, yet 
still responsible, decision making 

Such communicating will be done to all persons at all echelons in 
collective organizations— i^p, down, and throughout the structure— on 
a scale never feasible before; on a scale whereby people can make deci 
sions with "upstairs vision," sensibly and realistically; and on a scale so 
that functional experts— who alone may increasingly be expected to be 
the only ones with needed deep technical understanding and awareness 
of current developments and potentials in their special fields— may them- 
selves have information about the external and business, as well as the 
purely "technological," impacts of their decisive choices. 

And so decentralization of decision-making responsibility goes hand 
in hand with decentralization of information; the decision-making struc- 
ture goes hand in hand with the information structure; both are different 
aspects of the organization structure. 



280 MANAGEMENT BY OBJECTIVES 

ASSURING RESPONSIBLE DECISION MAKING 
THROUGHOUT THE ENTIRE STRUCTURE 

Perhaps the greatest fear that many managers have had in attempting 
to extend still further decentralization of decision making is the fear 
that individuals elsewhere in the structure lack the necessary breadth of 
vision to act with full organization responsibility in their decisions. 

Added individual responsibility occurs when the manager decentralizes 
genuine decision making increasingly to the specialist. The specialist 
with resulting authority and freedom to decide has— like the manager— 
the responsibility to act in behalf of the entire organization, not simply 
as an isolated expert in his own cell of technical competence. 

A wise philosopher, the late Jose Ortega y Gasset, in a penetrating essav 
on what he called the "Barbarism of Specialization," urged the educated 
functional specialist to act with full human as well as technical re- 
sponsibility. Criticizing the overnarrow "specialist" who will not take on 
that broader responsibility, Ortega said, "The specialist 'knows' verv ^\ell 
his own tiny corner of the universe; he is radically ignorant of all the 
rest, (literally) 'a learned ignoramus.' " 

A similar criticism has frequently been directed toward managers ^\ho 
tend to become specialists in a particular type of business decision that 
seems at the moment to work, or because of an intense preoccupation 
with profitability, tend to become short-term "profit specialists." AVallace 
Donham, early dean of the Harvard Business School, commented in these 
terms: 

Businessmen do not undertake the hard intellectual job of securing a general 
grasp of these complex problems through prolonged exchange of varied view- 
points. 

Most men think their duty done when they listen to and discuss one-sided 
presentations of narrow controversial topics. The hard study of relations is not 
undertaken. Under such conditions it is no cause for wonder that leadership 
fails. 

Both the manager and the specialist consequently have the responsi- 
bility to make decisions, although in different areas of competence: and 
both have a similar obligation to make decisions with mutual regard and 
respect for common business interests no less than the technical problem. 
Both have a responsibility like that of the statesman as contrasted with 
the more common view conveyed (although perhaps often unfairly) by 
the label "politician." 

Motivating Individuals to Decide Responsibly 

Motivating individuals to decide responsibly is a big order. In the 
practical world of today-taken not as some remote ideal, but as it is- 



DECIDING ^^^ 

how can larger numbers of functional specialists in addition to the man- 
agers be motivated to decide responsibly— to act like both business and 
technical or functional statesmen? 

Even after meeting the challenge of making information available of 
the kind, quality, and timeliness that is needed, how can individuals then 
be imbued with the needed sense of responsibility? 

First, to be consistent with the philosophy already discussed, they are 
not motivated by others, specifically by managers. All managers— and 
especially the president, general managers, and other higher-level man- 
agers—need to provide the climate and resources in which people can and 
will motivate themselves to make such responsible as well as correct and 
timely decisions. But "how?" is still a good question. 

There is indeed one school of thought which defines administration, 
or managing, as the resolution of conflicts, as the authoritative settling 
of differences among members of the organization. In fact, far too much 
emphasis everywhere seems to be placed on differences among men's aims 
and viewpoints, and hence on struggles for power to resolve such points 
of difference in one's own presumed favor. 

All around are conflicts built on differences: 

Juvenile delinquency in which youngsters are in conflict with their 
parents 

Labor strife in industry 

Rampant and irresponsible nationalism running loose in the world 

Is there no better way? Has the capacity to produce knowledge out- 
stripped the competence to organize to use it peacefully and productively? 
It has been said that if a "third world war" is fought with interconti- 
nental missiles and thermonuclear weapons that are available, the "fourth 
world war" will be fought with rocks! Is that to be the end result of the 
aggregate "deciding," after bringing our social and political economy at 
last to the threshold of a world-wide economy of abundance? 

Perhaps this is a logical result of focusing so much on perceiving— and 
then amplifying— the differences, while being blind to the far greater area 
of similarities. Yet, by definition, judgment involves becoming aware of 
both the differences and similarities in what we perceive. 

Even a little reconsideration of the fields of conflict mentioned above 
as too typical of life today readily brings out the questions: 

Do the youth of the land want to be in conflict with their parents and 
their elders? Or is there a failure to help them find common ground to 
go ahead together? 

Do the wage earners in industry zvant to be in conflict with managers 
or owners? Or is there a failure to help them find cofnmou ground to go 
ahead together? 



282 MANAGEMENT BY OBJECTI\TS 

Do the people of Egypt, or Russia, or the United States, or China, or 
France, want to be in conflict with each other? Or, here too, is there a 
failure to find common ground to go ahead together? 

Similar questions can be asked with respect to the myriad of conflicts 
that arise in the managing of business, conflicts that all too often are 
blithely referred "upstairs" for resolution at the highest level. 

Need for an Awareness of Common Purposes 

The key to answering such questions wisely lies in finding the co7nmon 
ground on which people can move ahead together toward a common 
purpose to enhance their common interests, emphasizing the similarities 
among these more, and their differences less. This is the constructive 
route to assuring that all people in an organization can be expected to, 
and increasingly will, act responsibly in making decisions, each in his own 
area of competence, in behalf of the whole enterprise. 

Every manager has, inherent in the work of his position, the deep re- 
sponsibility to sense, define, and then clearly communicate common in- 
terests and common purposes so that all members of the organization can 
be fully aware of them and mutually understand them. To serve as an 
effective key to decentralized decision making, these common interests 
and common purposes need to become "shared perceptions," jointly 
sensed and felt by every individual in the organization. 

"Management by Objectives," the over-all subject of this part of this 
Handbook, involves the determination and accomplishment, through the 
voluntary work of others, of desired performance and results; and doing 
so by achieving— successfully, economically, profitably, and on time- 
challenging and difficult-to-attain objectives of the organization com- 
ponent and of the enterprise as a whole; and doing so also in the balanced 
best interests of customers, share owners, employees, suppliers, and the 
public, including its governmental representatives. 

An "objective" is a goal or a purpose. A purpose stems from an interest 
-in the final analysis, from a personal interest. Managing by objectives 
can therefore itself be approached by sensing the similarities of interests; 
first, of the same individual in the multiple roles he actually enacts in 
real life— customer, investor, employee, citizen, all at the same time: and 
second, of the different individuals, and collective organizations of in- 
dividuals, whose interests interlock, and hence call for "best balancing" 
with those of the enterprise or component being managed. 

Here, then, is the means for the self-motivation of large numbers of 
individual specialists as well as managers to act responsibly in their decen- 
tralized deciding, and thus to act like statesmen in behalf of the entire 
organization. 



DECIDING 

Encourage them to find the similarities in what they jointly perceive, 
to thus sense their common interests, and to use these common interests 
as foundational elements for definition and pursuit of common purposes. 

This is the plain best route to "motivation" that will unlock the vol- 
untary efforts of diverse individuals working in a common cause. Through 
this approach, in turn-a natural result of managing by objectives-decen- 
tralized "deciding" can increasingly be done responsibly throughout the 
entire organization structure. 



USE OF MACHINES AND TECHNIQUES FOR 
PROCESSING INFORMATION AS AN AID TO DECIDING 

As part of the "information and communication revolution" in which 
we are now living, there is an expanding array of tools-data-processing 
equipment, computers, and similar equipment-for sensing, translating, 
and communicating almost instantaneously, and to remote locations, the 
information used for inputs to, or resulting from the output of, such 
computers. 

Not directly related to these machines, but often used in conjunction 
with them, are evolving ways of visualizing information in more signifi- 
cant forms, or for "seeing a system whole," which are highly significant 
aids to the increasingly complex decision-making situations in business. 
These are developments encouraging both the decentralization of infor- 
mation, making possible more and better decisions throughout the organ- 
ization structure, and also a better upward flow of patterned information 
in the forms most useful to improved, appropriate, higher-level decisions. 

This section deals briefly with these new and expanding developments 
and with how they can fit into the decision-making structure of an 
organization, thus ever more vitally affecting the "deciding" element of 
each manager's work, and, for that matter, also of each nonmanager's 
work. 

The Use of Machines 

Machines capable of handling mathematical or analogue "models" of 
almost unbelievable complexity-and of grinding out answers almost in- 
stantaneously-are available and in use and are constantly being reduced 
in size, complexity, and cost. Ancillary equipment can tie these machines 
through teletype or microwave networks to data sensed and simultane- 
ously collected from many different plant or sales-office locations or cities. 
Outputs can be arranged to guide automatically both individual machine 
tools and also over-all, continuous-flow industrial processes, or even many 
types of intermittent-operation and variable-mix job shops. 

The full capabilities of such machines are as yet untapped. It is not 



284 MANAGEMENT BY OBJECTIVES 

surprising that many people have been overwhelmed by them. Further- 
more, these capabilities are expanding and will continue to do so at an 
accelerating pace. 

There have been demonstrations of machines that "learn" with experi- 
ence. These are arranged to readjust automatically their original pro- 
grams themselves, improving them as they go along. Having thus 
"learned," their "educated" programs can be duplicated and inserted in 
other machines wherever the more advanced kind of machine is needed. 
It seems, superficially, almost analogous to the "automatic reproduction 
of educated brains." 

At least one such machine is being programmed to "play chess." Its 
proponents predict that this computer will become the uncontested "chess 
champion" of the world. Of more potential economic significance, it is 
now predicted that within a short time a computer will be able to 
"discover" and "prove" new mathematical theories. 

Those who talk about computers "playing chess" and "discovering 
theories" also talk about computers "making decisions." If this were pos- 
sible, the "decision making" done by machines would become part of the 
decision-making structure of a business organization. 

Machines are and will increasingly become a link in the decision- 
making structure, but not because they "make decisions." It is rather be- 
cause they are highly useful tools in helping ?nen make decisions more 
effectively and more promptly, from more accurate, more useful, and 
better-organized information. 

In the sense that this chapter discusses "deciding" or "decision mak- 
ing," a computer— no matter how elaborate— does not "make decisions" 
any more than a shovel "digs" or a spoon "eats" or any other tool can be 
said to do what man does when he uses the tool. 

The Man-Machine Relationship. A simple analogy ^vill be helpful in un- 
derstanding the relationship between man and machine, as man uses the 
latter to help him accomplish his work. 

Assume that a road is under construction where human labor happens 
to be plentiful and modern tools are scarce. Coarse gravel is needed, yet 
the only natural gravel consists of a random mixture of coarse and fine 
stones. A man is given the job of sorting big stones from little stones bv 
hand. Such a man may well view his job as a whole series of decisions. 
He picks up a stone, looks at it, and asks himself, "Is this a little stone or 
a big stone?" He makes a decision, and he makes another, and so on, all 
day long. He can be imagined as discussing his work with his ^vife and 
saying, "Decisions, decisions, decisions! That's all I do all day long— make 
decisions!" 

Suppose, then, that an improvement is made in the method of sorting 
gravel. The man now picks up a screen and shakes the gravel on top of 



DECIDING 2^^ 

the screen. "Big" stones stay on top; "little" stones drop through. Man 
now has a new tool that vastly simplifies his work— it saves him thousands 
of decisions. 

Does the screen now make the decisions? It may seem absurd to think 
that a screen can "decide" whether a stone is a big stone or a little stone. 
Yet this is the only sense in which a computer can be said to make 
decisions. 

None of the human qualities discussed in the first section of this chap- 
ter—freedom, responsibility, creative imagination, awareness and visual- 
ization of likely consequences, consideration of value, principles, feelings, 
and beliefs— is a factor in the process that a computer goes through in 
collecting, sorting, comparing, rejecting, and following other electrical 
or mechanical predetermined operations. 

Even the computer that "learns" follows a predictable, predetermined 
course. What it learns is predetermined, built in, inevitable. 

Machines as a Means of Simplifying the Managers Work. The computer is 
a tool, like a shovel, a spoon, or the screen used in sorting gravel. As a 
tool, it can be used to simplify loork, particularly the work of deciding. 

In work of rapidly increasing complexity and of accelerating change, 
the manager— and, of course, no less his nonmanager fellow workers- 
needs to learn how to use these new tools effectively, to simplify both his 
own work and also that of the organization for whose results the manager 
is ultimately responsible. These tools need to be used to aid in bringing 
into full play the decentralization of decision making. It is through 
the maximum use of such simplifying tools that it will be possible to 
cope with the rapidly expanding complexity and faster pace that the 
business, economic, and political future will bring. 

Thus the computer and associated data-processing equipment can be 
used in several specific ways. 

Repetitive Decisions Can Be Eliminated. In the first place, this equip- 
ment can be used to eliminate the need for making the same decisions 
over and over again, decisions like that of the man picking up stones to 
separate the large and small. 

Wherever a general conclusion can be established— wherever, in effect, 
it is possible to standardize certain decision making and say, "Whatever 
meets these specific criteria will be accepted without further question, and 
whatever fails to meet them will be rejected"- a decision can be made 
once, eliminating the need for all subsequent repetitive decision making. 

This is what was done when someone decided to use a screen to sort 
gravel. Man still makes the basic decision, but he makes it once in setting 
up the criteria. W'ith the judicious use of a new tool, he then saves him- 
self the trouble of making it over and over again. 

The advantages of new machines to save men the necessity of making 



286 MANAGEMENT BY OBJECTIVES 

repetitive decisions can be brought to work throughout the organization 
structure, to managers and also to each functional individual contributor. 
The current economic capabilities of such machines thus need to be 
taken into account in the organizing process: in defining and establishing 
the assignment of work that needs to be done in each position and com- 
ponent and in defining and establishing the decision making and infor- 
mation structures. The effective use of human resources will closely parallel 
the extent to which machines can be used wisely and economically to 
reduce the number of individual human decisions that need to be made. 
Consideration of the uses of such machines needs to be undertaken on 
a dynamic basis. The economic, and especially the technological, balance 
is changing and will continue to do so at an accelerating rate and with 
ever more significant social and political impacts concurrently. ^Vhat man, 
together with an economic use of today's machines, can do now may itself 
quickly be obsoleted by what man can do with tomorrow's machines. 

Rapid Dissemination of Information Is Possible. A second major use of 
modern data-processing and computer equipment is a direct result of the 
capacity of such equipment to handle massive volumes of data in such a 
short time that they become available almost simultaneously with the 
occurrence of the events which they report. The equipment can also 
communicate and make this information available simultaneously at 
widely dispersed work stations, offices, or geographical plant locations. 

Information can be made available overnight that formerly took months 
merely to collect. In the past, this kind of information just was not avail- 
able on time and many interim decisions had to be made without it. 
"Educated guessing" had to be done on what the actual facts might 
have been, or seemed to be trending toward, or had been in some prior 
period. 

Information can now be presented in revealing relationships with other 
information, so that both significance and meaning are readily apparent. 
Arithmetical sorting, comparing, plotting, and similar processes, formerly 
either uneconomical or too time-consuming, increasingly can be done 
economically and almost instantaneously, with data-processing equip- 
ment now (or soon to be) available. 

Ready access to information, quickly and in significant, usable form, 
can take much of the uncertainty out of "deciding," uncertainty that was 
hitherto a result of deficient access to information. Also, the "deciding" 
process can be economized by eliminating large payroll expenditures 
for "deciding" talent, people who are now really only trying to guess at 
what the facts might be. 

Actually, today, no few— in fact, too many— managers seem fascinated 
by the idea of using such marvelous, rapid, and economic data-processing 
equipment and computers to feed better, more detailed, more accurate, 



DECIDING ^°' 

and more complete information promptly to the center, so that from a 
single spot the entire operation can be "controlled" more effectively. The 
use of such equipment for more effective centralized "control" is self- 
defeating, if for no other consideration than the sheer volume of informa- 
tion thus brought to the center. No human can possibly absorb, under- 
stand, and wisely utilize it. To be used effectively, it needs to be divided 
up among many individuals— individuals already normally out in places 
close to the actions to which the information is related. 

As the computer experts of one large company expressed it, "Central- 
ized programming tends to use the computer efficiently to solve the wrong 
problem; decentralized programming tends to use the computer ineffi- 
ciently to solve the right problem." Their experience thus confirms that 
no small group of individuals, no matter how skilled they may become in 
computer operation, can possibly have the needed basic knowledge in all 
today's complex and expanding functional technologies even to visualize 
accurately the countless factors, situations, combinations, and trends 
which are constantly multiplying and interlocking in each. 

Decisions on the best placement of responsibility for computer opera- 
tion, however, need to reflect both the scope and the diversity of the 
particular business— as well as where, when, and to whom the computer- 
generated information will be sent. A multiunit, diversified, and decen- 
tralized national corporation, for example, may be organized with rela- 
tively autonomous profit-and-loss-measurable operating businesses. Many 
of these may be as large as, or even larger than, the complete corporate 
structures of some of its individual competitors. Optimum computer 
operation for such a large corporation may be at the decentralized busi- 
ness component level, or even dispersed through the functional organiza- 
tion components of such businesses. For the smaller competitor, it may 
well be at company level or, likewise, in various functionally decentralized 
organization elements. 

In both cases, however, the use of modern data-processing equipment 
and computers is far more promising if the flow of information is quite 
the reverse of that visualized by those managers who would use it to 
recentralize decision making. 

Rather than feed more accurate, more detailed, and more complete 
information about each part of the operation to some center, the same 
basic kinds of equipment can be installed, connected, and then used to 
feed more accurate and more complete relevant information about the 
over-all operation to each part. 

The "information and communication revolution" thus becomes the 
means for making possible the rapid, accurate, effective decentralization 
of information that is needed for progressive, desirable decentralization 
of decision-making responsibility. 



288 MANAGEMENT BY OBJECTIVES 

These new tools will thus become, like erasers or adding machines, 
increasingly decentralized, both physically and in constituent design, for 
direct use at or near each local work place. At the same time, they may 
be connected, through proper circuitry, to simulate a view of the over-all 
business as it actually exists through the synthesis of its separate parts, 
but from the parts to their dynamic whole, not by mere centralized sub- 
division from some master mind down. 

Similarly, decentralized flow of information permits and encourages 
the use of self-measurement. Continually improved decisions are possible 
when results of previous decisions are made known accurately and quickly 
to those responsible for such original and improved decisions. They can 
thus make their own "corrections," initially and voluntarily, in the first 
place, and without waiting to be "told how" by some higher, centralized 
"authority." 

The Use of Techniques for Structuring Information 

As indicated at the beginning of this section, closely coupled with the 
use of the machines and equipment discussed above is the development 
of an entire new body of knowledge. Putting this kno^vledge to use has, 
in turn, led to the development of a whole array of new techniques for 
visualizing information in more significant forms— for "seeing a system 
whole," even for anticipating changes in such a "system" more rationally. 
Many techniques are also being collected from a diverse array of the 
older disciplines, such as mathematics and physics, as well as economics 
and the other "social sciences." 

Various different names have been given these techniques, such as 
"operations analysis," "operations research," "business systems research." 
"operations research and synthesis," and "management science." 

Particular names are not significant, however, for purpose of discussion 
here. What is important is that systematic study ca?2 result in classifica- 
tion, characterization, and structuring of raw data and the devising of 
explicit hypotheses representative of the real ^vorld— hypotheses them- 
selves capable of unfolding and progressive refinement and, where appro- 
priate, of purging the old to make way for new developments. 

In this connection, it is useful to distinguish between the individual. 
"problem-solving" kind of penetrating study, on the one hand, and deep, 
continuing research into the business as a dynamic system, on the other, 
including the synthesis or pulling together of the research results into 
revealing, operationally useful knowledge about the business as a whole 
and in its total social and economic environment. 

Both kinds of "research" involve study of the business. Both use a com- 
bination of older disciplines and evolving newer disciplines. Both bring 
methods and techniques of fresh, penetrating investigation and logical 



DECIDING 289 

analysis to the masses of data and information generated within the 
business and also coming to-or at least available to-the business from 
its external, competitive environment. 

Yet the outstanding contribution of all this to a business comes in 
planned, continuing synthesis, or "putting together again." It comes from 
the constructive questioning of assumptions, the development of alterna- 
tive theories based on different assumptions, and the development of new 
patterns of information based on these different assumptions. It comes 
from the development of alternative models of the business as a system- 
including representations of its total environment in the ecological sense 
—models that can be operated increasingly, as such patterns, trends, and 
drift from trends can be detected and made available, to test in advance 
the probable relative outcomes of alternative business decisions. 

This, in turn, leads to a remarkably sharper, steadily more inclusive, 
more representative— and so more useful— "image" of the over-all business. 
And largely aided by advanced communication devices, this "image" can 
be shared quickly, accurately, and widely throughout the organization, 
thus making possible vastly improved, individual, decentralized decision 
making. 

The fulfillment of these kinds of responsibilities is consequently evolv- 
ing as a new and distinguishable kind of work— itself as different from 
the managerial work of the business as such managerial work is from 
engineering or financial work. And though different from managerial 
work, it is a kind of work that itself needs to be managed for its successful 
accomplishment, as does any other functional work. Like this and other 
kinds of functional work, it may be structured in the organization to be 
performed either at the over-all business level when used at that scope or 
as "supporting" work within some other functional area, when used only 
for fields within that functional scope. 

In one sense, this developing kind of work involves building a "screen," 
as illustrated in the previous example of sorting gravel. Building the 
screen implies knowing what is meant by coarse, medium, and fine, as 
well as getting agreement on these meanings and on how to make use 
of them. Some logical way then needs to be devised to use this informa- 
tion. In the case of the stones, this involves a nest of screens of different 
mesh sizes. Different sizes of stones then are collected on the surfaces of 
the next smallest mesh screen. 

The principles of selection— \ht criteria for decision— n^^d to be defined 
and agreed upon before any process can be routinized. Here again, there 
is both the need and the opportunity for systematic, penetrating, and 
continuing study. 

Limitations of the Techniques. New scientific methods, as used in this 
developing kind of work, have much to offer in coping with business 



290 MANAGEMENT BY OBJECTIVES 

situations of accelerating complexity. Yet there are severe current limita- 
tions. Managers need to be aware of these, especially in any attempt to 
transfer directly either the philosophy or the techniques of the physical 
sciences to the operations of a business. Some of the limitations are: 

The many things that happen in a business reflect past or present 
conditions. These are the things that are noted and recorded— how often 
they occur, their regularity, their interrelationship-reflecting conditions 
that are subject to change by human action within or outside the busi- 
ness. The statements that result from this information (other than pureh 
historical statements) are in the form of expectations rather than of "facts" 
of directly predictable usability. 

A business commits today's resources according to expectations for 
tomorrow. The purpose is to take risks, and thereby to change the en- 
vironment in which it exists, as well as to adapt to this constantly chang- 
ing environment. 

Underlying the business as a "system," therefore, is this concept of 
change— ch2Lnging environment, changing expectations, the changing be- 
havior of people (employees, suppliers, distributors, customers, compet- 
itors, voters, public officials, to mention but a few) from some condition 
originally anticipated. This is distinctly different from the concept under- 
lying most physical systems, that of sufficient future stability to enable 
the prediction of consequences, given certain present conditions and cer- 
tain facts known from past measurements or reproducible experiments. 

For a business, the actual environment in which a given "problem" is 
embedded, therefore, is fluid. The very act of realizing an opportunity 
usually has a perceptible impact on— and so tends to change— the environ- 
ment itself. 

Theories concerning the operations of a business as a system should not 
be viewed, then, as statements of natural laws, nor of the operation of 
natural laws. Rather than being merely the observation of unchanging 
regularities and relationships for the purpose of deriving specific pre- 
dictions, such nonphysical, or social-science, hypotheses and theories need 
to be seen clearly as being only statements comparing expectations with 
observed reality. 

A theoretical basis can thus be provided for effecting changes in the 
behavior and the relationships of the specific organization of people and 
resources which makes up the business, and so for anticipating probable 
trends— even trends of changes— but always subject to understanding that 
with human judgment in the "system," both random and unpredictable 
changes may cause actual developments to vary greatly from those ex- 
pected or anticipated. 

Need for a Theory of the Business. A primary reason for developing and 



DECIDING 291 

communicating hypotheses and theories concerning the business is to 
achieve better-integrated joint performance of those sharing common 
economic purposes. To the extent that joint performance is not optimized, 
high performance in any function becomes less significant, or at times 
suboptimized or even detrimental. 

Thus there is constant practical need for developing and expressing an 
over-all hypothesis or theory for the business more concisely, more ex- 
plicitly, and more meaningfully than most managers so far have been 
able to provide. 

Diverse, multidirectional efforts are the results of the widely divergent 
views of the business often held by people, both managers and functional 
individual contributors, in different functions and working at different 
specialties. They may disagree significantly on the part their own work 
contributes to the whole, on the relationship of the work of others, on 
the impact of perceived environmental changes, and even on the direction 
and goals of the business itself. 

The leadership challenge is therefore to provide unified hypotheses 
for all to use in the hypothetical evaluation of the consequences of their 
own proposed alternative courses of action. The potential effects of pro- 
posed decisions and actions within various organization components of 
a business can then be studied and understood for their effects on the 
total performance of the business, and before decisive action takes place. 

Another characteristic of an ordinary business is worth noting. Usually, 
it is the major change that is observed, recorded, and acted upon. This 
is the so-called "quantum jump," the "break-through," the abrupt real- 
ization that what has been accumulating for some time has "suddenly" 
erupted into a crisis. 

But in reality, many changes— probably, even, most changes— in a busi- 
ness take place gradually, yet, in retrospect at least, seem to move almost 
imperceptibly, with a discoverable direction or amplitude. 

There is consequent deep need to measure and understand such "creep" 
—both internal and external to a business— as a prelude to, and hence 
possibly even a preventer of, the kind of crisis produced when something 
suddenly reaches the threshold where decisive action is demanded. 

Creative Planning. Alertness to major change is enhanced by creative 
planning, especially creative decentralized planning which is sensitive 
both to trends in specialized developments and to their current and pro- 
spective "fit" in the over-all, dynamic flow of the business. Frequently, 
"planning" has been based on merely extrapolating or projecting his- 
torical data and trends in a so-called year-by-year "forecast." This almost 
insures getting caught napping should a significant "break-through" 
occur. It also practically guarantees missing profitable alternative oppor- 
tunities along the way. 



292 MANAGEMENT BY OBJECTIVES 

More imaginatively, planning can be based on at least three views, 
or expectations, o£ the future: 

An accurate projection of known trends to get a highly probable view 
of that part of the future that is "almost inevitable" (e.g., today's babies, 
already born, will be tomorrow's adult market in closely known num- 
bers) 

Creative speculation in an effort to try to imagine possible alternative 
environmental changes, say ten to twenty years ahead: changes that may 
be brought about by the actions of other people, other businesses, the 
government, even other countries (for example, the possibility that 
someone might invent an inexpensive, portable, new source of electrical 
power) 

Creative speculation in hypothesizing different kinds of future condi- 
tions that might be deliberately and causatively anticipated, sought and 
created by managers and other workers of the business itself, ^vithin anv 
constraints provided by these first two "views of the future" 

From among the alternative "futures" portrayed by this process, one (or 
several) can be decisively selected. From this view, Tvorking back^s'ard so 
to speak, plans, even "long-range" plans, can then be developed so that all 
concerned can move causatively to make the ''selected future" come true. 

For greater sophistication and flexibility, several alternative "futures"" 
may be selected. Alternative plans will then be on hand to modifv earlier 
plans to take full advantage of the future as it actually unfolds. For un- 
fold it will; seldom in exactly the manner "predicted" by the wisest 
"seer," yet perhaps closer— by such progressive "information" approaches 
—than could be intuitively anticipated in the past. 

A Human Approach Is Required 

One thing to bear always in mind is that men are a part of the 
system called "a business." They need not always act "rationally"": in fact. 
they need not get one single personal "answer" from this "system."" 
It is, however, important that they have injormation upon which to act. 
and that others who act with them in concert know of their volitional 
acts, so that they may go along with, countervail, or correct in terms of 
some framework of common understanding and common objectives. This 
again requires explicit information at various generalization levels, in- 
cluding more knowledge of how the "world" which is their organization 
actually works. 

A part of this process is to try to foresee or anticipate prpbable conse- 
quences under ideal, theoretical, or assumed "standard" circumstances, 
so as to establish standards of expectation for men who do not. consider- 



29S 

DECIDING 

ing their usual limitations, always act rationally. Again the need to 
predict men's behavior is not essential. It is desirable increasingly, how- 
ever, to provide them with expectations of performance, as a basis for 
common effort, and with workable, practical, iisahle hypotheses to indi- 
cate the potential consequences, to others as well as in their own work 
field, of alternative personal decisions. 

Man, while volitional, customarily acts in his social and economic rela- 
tions within a culture, or a framework of expectations of results and 
consequences, a framework which with time comes to be one of estab- 
lished customs to a significant degree. 

Sometimes results are not up to expectations; sometimes man gets too 
"volitional" and gets "spanked"; and sometimes he changes his "ideal" ex- 
pectations and does different things accordingly. 

For example, it is a curious circumstance of the accelerating rate of 
change in today's social and political economy that the body of accepted 
moral behavior and the code of written laws are both, to some extent, 
themselves theoretical, rather than, as has historically been the case, es- 
sentially only the codification and writing down of customs already 
established and accepted as standards of behavior in the existing culture. 
As theories, they lead society with respect to the results expected from 
their use. They are also corrective in their application. 

The fact that human behavior cannot be "predicted," then, is not 
nearly as significant as the fact that people need information to help 
them with their own "deciding." 

They need hypotheses or theory that spells out what they need to do 
—some commitment— in order to bring about "ideal" consequences. This 
information will need to indicate both the current situation and also 
the common standards of expectation, which are both so necessary for 
successful joint performance. 

"Scientific techniques" can be useful to help see as a whole that partial 
representation of a business which is validly analogous to a physical 
system. Human judgment, understanding, and volitional choice are 
needed to fill in the balance of the picture, the part that depends on 
human beings as emotional, feeling, believing individuals, each with 
his own sense of values. 

There is a tendency on the part of some who are heavily preoccupied 
with "scientific techniques" to visualize all reality in terms of the deter- 
ministic, mechanistic kind of behavior exhibited by physical systems. 
Others find it useful to divide reality into but two groups of phenomena: 
phenomena, on the one hand, that are like physical things that can be 
objectively observed and demonstrated by experiment and, on the other 
hand, like human values and human choice, "knowable" only subjec- 
tively. 



294 MANAGEMENT BY OBJECTIX-ES 

Knowing how to deal with the former, they eagerly do so. Since they 
do not know how to deal "scientifically" with the latter, even though 
recognized as a vital part of "reality," it is left out of consideration as 
being not "scientific"; or the "scientific techniques" of the physical sci- 
ences are "tortured" in the laborious and vain attempt to "make them 
work" for human behavior. 

Since a business organization is fundamentally an organization of 
people, and since all these people are volitional; since a business thrives 
by producing products or services which are of value— subjective human 
value— to its customers; since a business involves a set of human relations 
and an exchange of human values with its share owners, employees, sup- 
pliers, and the general public as well as its customers; the conduct of a 
business depends heavily on effective dealing with phenomena in an emo- 
tional, human world, and definitely not just a deterministic, mechanistic, 
physical world. 

The decision-making structure, and especially the "deciding" done by 
higher-level managers, thus cannot be wholly based on "scientific tech- 
niques." 

Such techniques do need to be used for their fullest contribution, but 
the whole view of the business— of the objectives, common purposes, and 
common interests— deeply needs to extend beyond the limitations of such 
techniques and to be communicated throughout the organization. The 
requirement voluntarily to keep the individual basically free is no less 
in the industrial than in the political or governmental organization, and 
the inevitable penalties for failure to do so will be no less sure in either. 
This is indeed one of the fundamental areas of decision making where 
today's leaders particularly need the time to think profoundly and to act 
wisely, if adverse, and even ultimately harmful, employee and public 
reaction and resort to socialistic alternatives are to be avoided successfully. 
Quite beyond the limitations of such so-called "scientific techniques," 
however, there is emerging gradually a ''science of managing" and there 
are evolving "professional managers." These lasting concepts stem, more- 
over, from a basic concept of man as an individual, who associates with 
his fellow men for the accomplishment of some economic purpose— and 
profit— and also for the satisfaction of intellectual and spiritual needs, 
without losing his individual identity, dignity, creativity, and value in the 
process of doing so. 

In such a framework, significant "break-throughs" such as the following 
contribute to the continuing possibilities of coping with— even of capital- 
izing on— the accelerating increase in business complexity: 

The speed with which all forms of information can now be transmitted 
The accuracy with which such information gets through 



DECIDING 295 

The common-language aspects of communications theory, discouraging 
misinterpretations 

The translation of information, through electronic and other means, 
into more understandable, simpler forms, numbers, words, graphs, and 
other symbols 

The rapid computation of involved information and its reduction to 
forms most meaningful for pressing decisions 

The synthesis of complex, interrelated information into patterns, into 
mathematical and other models, and into revealing simulations of 
significant relationships 

The emergence of a ''science of managing/' using "science" in the sense 
of an organized body of knowledge, but not in the narrow sense— as in 
the purely "physical sciences"— of a body of facts developed from repro- 
ducible experiments and expressed in laws of definite predictive useful- 
ness 

The evolution of the "professional manager/' using "profession" in the 
sense of a calling to which creative men dedicate themselves, which has its 
own body of organized knowledge and a code of ethics to which they 
voluntarily adhere in its creation, extension, understanding, application, 
and use 

The net effect of these exciting developing factors is the facilitation of 
an orderly organization structure which allows the manager, as a result 
of genuinely managerial decision making, to get the integrated work re- 
sults which collective organization requires. At the same time, the 
organization benefits from the free and independent ideas that all workers 
can and will have. These are the ideas that are different from and go 
beyond those the manager— or any one man— can or will have himself. 
Thus all members of such an organization are encouraged to participate 
with dignity, vision, and creativeness. 



NEW ORDER OF DECIDING FOR MANAGERS 

The concepts discussed in the preceding sections of this chapter pave 
the way for a new order of "deciding" as the legitimate and valid work of 
managers. 

These concepts are especially significant to those with over-all responsi- 
bility for large corporate operations and growth or for over-all conduct 
of decentralized profit-and-loss business and functional organization com- 
ponents within such corporate scopes. 

The work of these managers is definitely not doing all the "deciding" 
while the rest of the organization merely carries out what has been "de- 



296 MANAGEMENT BY OBJECTIVES 

cided." In fact, what "deciding" is done by most managers may often 
better be directed to avoiding the making of most decisions, organizing 
the work so that others can increasingly make them— and so can make 
better decisions than would have resulted by insisting that they be made 
only by managers. 

This, then, is a principle for improving the quality of the "deciding" 
throughout the organization structure. There is, to emphasize, a clear 
potential for a vast improvement— by considering the possibilities of 
making far fewer decisions at the higher organization levels. But there 
would, in turn, be far more time and a far better atmosphere for un- 
hurried contemplation, and consequently more deeply decisive treatment, 
of matters then rightly and legitimately reserved for higher-level managers. 
It has been observed that probably the great majority of managers 
today have more information than they have either the time or the ana- 
lytical capacity to use in any detail, though, sadly enough, not necessarily 
the particular information truly essential to make needed decisions most 
wisely and promptly. As a result, they try to make too many decisions 
that others in the organization could make better— and ought to be 
required to make, instead of referring "upstairs" what should really be 
their own job. 

Much of this is a result of the tendency of individuals, as thev are 
promoted, to "carry their old job upstairs," rather than to leave their old 
work to their successors to enjoy as they wanted to enjoy it ^dien they 
were responsible for it. 

It seems to be a natural human tendency to continue to do the ^vork 
that has become most familiar through past experience. One of the 
biggest opportunities in manager education and in manager development 
-a challenge that has yet to be met adequately despite mushrooming 
courses, seminars, conferences, and programs in this field— is therefore 
to convince a man that as he moves up from one organizational echelon 
to the next, his new job is 770^ merely "more of the same" over a wider field 
or scope, but is instead a distinctly different kind of work requiring a 
different kind of ''deciding." 

And this different kind of work is usually something for ^vhich he 
rarely gets adequate preparation in advance. 

Thus, when a salesman becomes manager-sales or an engineer becomes 
manager-engineering, for instance, he does not become just a "big sales- 
man" or a "big engineer," responsible for more sales or more complicated 
designs. He becomes a man responsible primarily for personal work to 
get results through the work of others, instead of directly by his o^\n 
functional skills. 

Similarly, when a manager-sales or a manager-engineering becomes 
the general manager or the president of a business, he does not become 
just a bigger functional manager, or even merely a multifunctional man- 



DECIDING 297 

ager. Quite differently, he becomes the manager of an entity which is a 
profit-and-loss, competitive, risk-taking enterprise. His decisions pass from 
the realm of high, technical, functional competence and into a field where, 
increasingly, tail winds not of his own making tend to speed the business 
up and head winds not of his own making tend to slow it down. 

It is his new work to bring to bear a capacity to know and to apply 
managerial principles, not merely techniques, that will achieve targeted 
results or better, despite good and bad random variables. It is to have 
within himself, by that time, resources of experience, intelligence, and 
ethics that will allow him to make the decisions involved in doing the 
work of a general manager or a president. 

He will need attitudes of simplicity, of flexibility, of adjustability to 
changing conditions, while still "keeping the business ship on course and 
on schedule." And in this connection it is worth reemphasizing that using 
his time to make the wrong kind of decisions— decisions that should more 
properly be decentralized to other managers and to functional individual 
contributors, aided by information similarly decentralized to make their 
decisions feasible and sensible— is a dangerous misuse of a general man- 
ager's or a president's knowledge, skill, effort, and time. 

In the context of such a new order of "deciding" for presidents, general 
managers, and other higher-level managers, the kinds of decisions that 
have customarily been viewed as the "strategic" decisions of a business are, 
indeed, steadily becoming the "tactical" decisions of daily operation. 

The Changing Scope of Managerial Decisions 

It has been customary, for example, to think of a general manager's 
strategic decisions as falling in such spheres as setting prices to customers, 
fixing the level, and so the costs, of production, and allocating money 
resources for plant expansion, research and development, merchandising 
promotion, and similar functional operating activities. 

As these tend more and more to become tactical decisions, increasingly 
decentralized below the level of the general manager, a modern concept 
oi strategic decisions will include those which: 

Set the initial and continuing scope or objectives of the business 

Determine what products or services it will have for sale 

Elect what markets will be served and what channels will be used to 

reach them 
Generate a dynamic philosophy by means of which the business can 

continue to serve society profitably in the face of accelerating change 

Strategic decisions will be in the area of the "vision of the business" 
rather than in the areas of varying prices, altering schedules, or investing 
capital resources within an assigned scope and charter. 



29g MANAGEMENT BY OBJECTHTS 

The new order o£ deciding for the president or general manager of the 
over-all business will therefore increasingly include "deciding" on matters 
that are both more abstract and more riskful 

His decisions will be more abstract because the concrete, easily recog- 
nizable, down-to-earth matters will increasingly be decentralized to those 
closer to the points of action, leaving for the general manager those 
matters of both multifunctional and environmental, over-all, long-range 
significance and basic policy. Such matters will be founded on a ver\- 
broad base of information, many significant parts of which are continually 
abstracted and synthesized into orderly patterns for visualizing more 
clearly that which has general and primarily long-range significance. 

His decisions will be more riskful because a future of accelerating 
change— of increased automation and of increased complexity— will need 
decisions requiring increasingly larger commitments of resources, which 
are ever more highly irreversible despite need to make them in the face 
of unpredictable and increasing change. 

The risk is greater as evaluated in today's environment. Yet this risk 
can be met by decentralizing responsibility for much of the decision 
making, by judicious use of modern tools for the effective decentralization 
of the flow and gathering of information, and by effective use of abstract- 
ing, rearranging, synthesizing, and presenting needed information in more 
useful patterns depicting the system of the business and its competitive 
environment as a whole and with greater clarity. 

The president or general manager will then still be able to face matters 
of ever greater abstraction and greater risk with the same kind of con- 
fidence with which today's lesser risks are faced with today's less adequate 
and less useful information. 

Decisions Will Be Truly Human in Character 

Perhaps the most significant facet of the new order of "deciding" is in- 
creased emphasis on the truly and uniquely human character of the 
"deciding" to be done. 

Relieved as he will be of vast amounts of repetitive kinds of "deciding," 
relieved also of the burden of using his intuition and judgment for guess- 
ing at what the facts are likely to be or for intuitively estimating what 
the performance of that part of the system which follows predictable 
physical laws will be, he will be able to concentrate his ability more and 
more on the intensely human aspects of the business. 

A sample of some of the more difficult areas of such "deciding," then, as 
outlined by Melvin L. Hurni, will include: 

Decisions in an area where a man's work is Jiot a self-contained project: 
that is, when it represents only one part of a total effort in which that 



DECIDING ^^^ 

total is the real subject of interest, not the individual pieces, combining 
intellectual problems of understanding with emotional problems of self- 
commitment in a joint situation, where "measurement" is likely but prob- 
ably not clearly defined 

Trying to get outside one's own interests and views (and even successes 
and failures) and put oneself in the shoes of another man also interested 
in, or affected by, the work done or the decisions taken 

Hypothesizing into the future about what could happen— or what the 
president or general manager might want to happen— and planning and 
working on such unclear fronts, instead of on more tangible and visible 
current situations 

Combining sound theory with prompt action and with needed timeli- 
ness versus merely analyzing and speculating indefinitely 

Sensing and displaying the ''general" out of specific individual jobs and 
projects and being alert to do so and to evaluate resultant decisions and 
actions 

Thinking through how to integrate the loyalties of the professional 
worker to his profession and to his company or the similar loyalties of 
the nonprofessional worker to his union and to his company 

At first glance, these six sample instances of areas of difficult decid- 
ing may seem themselves to be only random samples, unrelated and 
diverse. 

They have in common, however, the fact that an individual fills many 
roles at the same time. These diverse roles are unified by his being only 
one human being, whose common interests in his multiple roles finally 
outweigh and outrank their diversities. 

This ties back to the point made earlier as the key to this kind of "de- 
ciding" for enlightened motivation of the entire work force. People do the 
work of the business. They can and will integrate their efforts to pursue 
common purposes. And it is the relationship of these to their common 
interests that every manager can and should take as one of his most vital 
fields of "deciding." 

Throughout this entire chapter there has been more emphasis on the 
decision making and associated flow of information throughout the or- 
ganization than on the specific "deciding" done by managers and general 
managers at higher levels in the structure. This is deliberate, since the 
potential opportunity for improvement in the effectiveness of the "decid- 
ing" done by higher-level managers lies in doing both a smaller quantity 
and a different kind of "deciding." 

All managers, especially higher-level managers, can make their own 
deciding far more effective, then, by: 



300 MANAGEMENT BY OBJECTIVES 

Tapping and unleashing the potential of people throughout the or- 
ganization to make responsible decentralized decisions in their own areas 
of competence 

Using computers and data-processing equipment to make information 
available on a decentralized basis to the people who can best use it in 
their own decentralized decision making 

Uncluttering their work from the pressure and the distraction of mak- 
ing decisions that can better be made elsewhere in the organization, thus 
freeing themselves to make a new order of strategic decisions, both more 
abstract and more riskful than those of the past and also more concerned 
with the uniquely human aspects of the business system 

Communicating the objectives and common purposes resulting from 
this new order of strategic decisions to all the people to provide a common 
motivation through which responsible decentralized decision making may 
be assured 

To the extent this is done, such managers will have made a major 
contribution toward answering the "challenge to leadership" as brought 
out by Ralph J. Cordiner in his penetrating and provocative closing re- 
marks of the 1956 McKinsey Lectures: 

Sharing the Vision: A Challenge to Leadership 

Any sensitive observer must agree that the human potential in business has 
never been fully unleashed. The great dream of the professional manager is that 
some day, he will find a way to share with his associates a mutually deep vision 
of what a truly inspired human organization can achieve. How can he build this 
managerial vision on all that they, as well as he, have to contribute to its formu- 
lation? How can he help every man and woman in the organization find a sense 
of true participation in working toward high and noble objectives that will 
bring everyone a sense of pride and satisfaction? 

I confess, this is one of the deepest desires of my life: to bring about such 
unity of purpose throughout the General Electric organization. 

These thoughts bring us again to that philosophy of management that was 
discussed in the previous lecture, the philosophy that recognizes the freedom, 
and the dignity, and the capacity of each individual, and eagerly asks for ^diat 
he alone can bring to the organization. 

1 am convinced that there is no such thing as the common man. Each of us 
is an uncommon man. Each of us has some distinctive and individual contribu- 
tion that he alone can make. 

When the professional manager at every echelon of the organization recog- 
nizes this, and cherishes it as his most deeply held belief about his fello^^- men. 
then he has found the clue to leadership in the American society. It is leadership 
of this kind that will determine whether the way of freedom will be the wav o< 
the world. 



PART THREE 

Managing People 




Lansing P. Shield 

PRESIDENT 

THE GRAND UNION COMPANY 

EAST PATERSON, NEW JERSEY 



Shortly after writing the following chapter, 
Lansing P. Shield died in a hospital in New 
York City. He was sixty-three years old. With 
the passing of this dynamic, imaginative man 
from the American business scene, the nation 
lost one of its outstanding business leaders. 

Lansing Shield was one of the truly dominant figures in the world of 
retailing. Although it would not be accurate to soy that he invented 
the supermarket, it is doubtful that any other man played a larger 
part in the development of this uniquely American institution, which 
has revolutionized patterns of distribution. 

During the period of his presidency of Grand Union, the company 
grew into a network of supermarkets in eleven Eastern states, the 
District of Columbia, and recently in Puerto Rico. Annual sales rose 
from $8^ million to over $600 million, placing the cojnpany in the 
ranks of the country's ten largest food retail organizations. 

Lansing Shield was an innovator and an inventor. Food-O-Mat, a 
major innovation in retailing, ivas his invention-only one of rnany 
important contributions which he made to retail shopping convenience. 
He was an enthusiastic advocate of advertising as the best means of 
moving food products; the Grand Union success story makes a strong 
case for the value of his imaginatively conceived, forcefully directed 
advertising and marketing strategies. 

Mr. Shield was also a visionary, but happily his visions were founded 
on a sturdy base of sound business knowledge, acquired through a 
start at the proverbial bottom of the ladder. Born in Linlithglo, Neiv 
York, he began his business career with a $20-a-week job as a clerk 
with the A & P stores — yeoman duty which served him well. He joined 

Photo by Hal Phyfe, New York 



302 



Grand Union in 1924 and was elected treasurer in 1^28, vice president 
in ip2p, and president in 1947- 

Convinced that "a world well fed is a world at peace," he worked 
energetically to raise living standards with more and better food at 
lower costs for people everywhere. A great deal of the treiid toward 
supermarket development in Europe can he attributed to his individ- 
ual efforts. In ip^S he became president of the International Associa- 
tion of Chain Stores, a post which he held for three years. He was 
elected then to head the International Association of Food Distribu- 
tors, a position which he occupied at the time of his death. 

Recognition of his leadership came from many quarters. France 
named him a Chevalier de la Legion d'Honneur; in icf^6 Italy made 
him a Cavaliere Ufficiale el Merito Delia Republica. Rutgers Uni- 
versity, where he received an honorary Doctor of Law degree in 19^2, 
elected Mr. Shield a life trustee. A past president of the New Jersey 
Chamber of Commerce, he served on President Eisenhower's advisory 
committee for the ip^p American National Exhibition in Moscow. His 
directorships included the Federal Reserve Bank of New York and the 
Prudential Life Insurance Company of America. 

March, i960 



CHAPTER 12 

Directing the Attainment of Objectives 



Creative leadership by top management is the key to the attainment of 
the basic objectives of a business enterprise. It is the prime ingredient 
in the alchemy of success. 

To plan, to organize, to communicate, to motivate— these are the me- 
chanics of the process. But without the ingredient of creative thinking 
applied to each of these steps, the end result is mediocre. Attempting to 
imitate competitors is a poor substitute for creative thinking. In business, 
as well as in social life, a philosophy of keeping up with the Joneses 
yields a frustrating and unrewarding experience. 

If the formula for success lay in parroting competition, the market price 
for top management would be found on the bargain table. Most great 
achievements in industrial history are built around ideas— fixed or fluid— 
rather than on a blueprint appropriated from competitors. 

The image of each successful business reflects a personality that cannot 
be bought or borrowed. Creative leadership that makes a company suc- 

303 



OQ^ MANAGING PEOPLE 

cessful is likely to keep it out front even though a competitor tries to 
catch up by adopting the other's methods and objectives. 

Creative personal leadership has been well described by Clyde E. AVeed, 
chairman of the Anaconda Company: "The kind of man who will succeed 
is the kind of fellow who is interested in adventure, not security. He's 
concerned with creativity, not the comfort of routine. He's a gambler of 
his energies on the calculated risk. He wants opportunity in life, not some- 
body's plan." 

Now, every top executive wants to be this kind of man. Not all make 
the grade, for the road which a corporate executive must take in his 
search for success truly represents a modern "pilgrim's progress." The 
many bypaths and obstacles that stand between him and his desired 
destination often divert his attention from the executive's most important 
function-creative leadership. All sorts of stumbling blocks along the road 
such as preoccupation with detail, outside interests, and lack of attention 
to personal health take a heavy toll. 

The executive can take out his own insurance policy to protect himself 
against the hazards along the road. Dedication to the undertaking is the 
prime ingredient in the formula of self-protection. There are others-the 
underlying motivation of rendering service, the desire to be a perfection- 
ist, the will to change habit patterns, the determination to avoid the 
frustrations of routine, and a genuine interest in people. 

Although a measure of creative ability is latent in every individual, 
more often than not it is a rusty tool, its edge seldom sharpened through 
use. Often the untapped resources of the individual mind are uncovered 
only by fortuitous circumstances. 

Here is a dramatic example: A nationwide retail organization began 
with three small stores which were manned by three ne^vly arrived immi- 
grants with limited schooling. Thirty years later the company had de- 
veloped into one of the great retail organizations of our time. In the 
meantime, the three immigrants had grown into outstanding business 
leaders and became the first three presidents when the company decen- 
tralized into divisions. 

The moral of this story is not that these men ^vere in the right place 
at the right time (that helps, of course), but rather that thev made use of 
the opportunity to develop the gifts with ^vhich they had been endo^ved. 
If a man has a fair measure of ability to plan, to organize, to com- 
municate, and to motivate, creative thinking will complete the "mix." 



PLAN 

In order to attain established objectives, top management must first 
plan-creatively. It is in this stage that the largest measure of creative 
thinking is demanded. 



DIRECTING THE ATTAINMENT OF OBJECTIVES 305 

Good planning starts with the setting of both near-term and ultimate 
objectives. Surprisingly, there are more than a few managers who are 
never quite clear what they are driving at and why. 

Creative thinking ensures an imaginative approach. Perhaps the best 
way to clarify the objectives of a company is to visualize what your busi- 
ness should be five, ten, or twenty years from now. What is your best 
estimate of what the market will be? What share of the market should 
you have as your objective? What changes may you forecast in the means 
of production and distribution? In the wants of customers? Should the 
image your company has created in the minds of your customers be 
changed? 

As you attempt to develop future objectives, thinking in general terms 
will not suffice. 

In our business, for instance, we try to create a specific image that will 
flash in the minds of housewives whenever they hear the name Grand 
Union. To be sure, from time to time this image may be modified because 
of economic and social changes, but always a definite "personality" should 
be associated with the company's name. 

Examples of how objectives may be established and reached may best 
be drawn from actual experience. In 1947, when I was made head of our 
organization, the Grand Union Company already had an excellent reputa- 
tion. It was the second-oldest food chain in the nation, with 319 stores 
and annual sales of $83 million. (In 1959, sales were over $600 million.) 
Most of these stores, however, were small, neighborhood units. A cum- 
bersome route division, selling door to door, still contributed more than 
15 per cent of our volume. 

The revolution in retailing was just moving into high gear. The basic 
changes that were taking place in the nation's way of life and its "stand- 
ard of eating" made it imperative that Grand Union's objectives be rede- 
fined if the company was to be one of the leaders in this revolution. As 
early as 1919, the Federal Trade Commission had said: 

Improved marketing facilities and processes are urgently needed ... in village 
as well as city. Dealers generally recognize this need. Producers are . . . pressing 
for such improvement. Consumers . . . have demanded that the system of food 
distribution be simplified and the movement of food be made more direct from 
field and factory to table. 

Yet it was not until the depression of the 1930s sparked the develop- 
ment of supermarkets that low-cost, self-service, mass distribution pro- 
vided the consumer with a much broader variety of merchandise at 
sharply lowered prices. Then when World War II restrictions were lifted, 
conversion to the supermarket method of distribution was suddenly 
accelerated. 

At the same time, there were compelling reasons for major changes in 
the character of the supermarket itself. As we rapidly became a nation on 



306 MANAGING PEOPLE 

wheels, consumers began to show a preference for one-stop shopping. Also, 
as the standard of living rose sharply, the housewife's desire for a new 
freedom from the laborious preparation of meals resulted in a flight from 
the frying pan to the refrigerator. She moved from in front of the stove 
to the driver's seat of the family car. This demand for broadened lines of 
food and precooked, ready-to-serve items resulted in a rapid increase in 
both lines and kinds of items available to the consumer in supermarkets. 
There was sufficient evidence at hand in the year immediately follow- 
ing the war to cause operators to revise their objectives drastically. Yet 
even the most alert food retailers were not imaginative enough to antici- 
pate the scope and pace of this revolution in food retailing. 

To take advantage of the immense possibilities opened up by social 
and economic changes, it was essential for food retailers to accompany- 
often precede— their customers to the suburbs and, in the transition, to 
adopt a new personality. The small neighborhood store and the down- 
town market were quickly replaced by one-stop food palaces with parking 
for scores and often hundreds of cars. In stocking all the immense variety 
of products necessary to satisfy consumer demands, new buying, mer- 
chandising, and distribution methods were required. And probably more 
important, these larger food department stores required a different caliber 
of general manager, trained in new techniques. 

Need for Flexibility 

This was the challenge which operators faced when I took the helm 
at Grand Union. My first step was to get away from the distraction of 
routine and the telephone for a few days. One might say, before advanc- 
ing I found it necessary to retreat to a quiet spot. In the course of about 
ten days, I tried to chart in broad outline Grand Union's new objectives. 
My first move on returning to the office was to call a meeting of the 
officers of the company and say to them, "Let's take the position that we 
haven't worked for the company before-that Grand Union is, in fact, a 
new company born today." 

For the next few weeks, the major efforts of this group were devoted 
to creative planning. As the group shaped the company's ne^v objectives, 
a new concept of teamwork developed. This initial planning period also 
provided an opportunity to decide on shifts in positions on the organiza- 
tion's team. This process of reexamination has been carried on annually 
ever since, and sometimes at shorter intervals. 

Quarterly we analyze carefully the trends in different types of stores. 
Intensive research is carried on continuously in the area of productivity. 
At periodic intervals, our entire organization structure, personnel, oper- 
ating costs, and budgets are studied and revamped. 

Not so :cng ago, this type of review resulted in sweeping changes in 



DIRECTING THE ATTAINMENT OF OBJECTIVES 307 

our system of store supervision, even though the old system had been 
working reasonably well. 

Just as the individual needs a periodic checkup, so does the corporate 
body. To put it another way, some companies go on with the same old 
daily delivery of oats long after the horse has left the barn and the 
building has been turned into a garage. Sometimes, too, while the horse 
is still a consumer of oats, a company is well advised to make plans for 
servicing its successor. 

In this transition in our industry, which has been as swift as the shift 
from the horse and wagon to the jet, the supermarket of 1947 is already 
obsolete. And even more sweeping modifications of the supermarket pat- 
tern are in the offing. If the principle of self-service and low markups are 
what the customers demand, why not try it on all household and family 
use items and why not make these items available all under one roof to 
food customers? Our Grand-Way super discount department stores- 
some of which do as much business as an entire chain used to deliver— 
were founded upon this concept of the customers' wants. In the average 
supermarket, an arbitrary line has been drawn in limiting nonfood items 
to about 900. The Grand-Way concept provides for departments stocking 
about 35,000 family-use items. 

When the chief executive adopts a formula or an objective as radically 
different as the Grand-Way concept, it takes courage as well as imagina- 
tion to carry it out. Some doubt and honest opposition to new ideas are 
inevitable. At Grand Union, we resolved this problem by starting the 
Grand-Way concept on a small scale and by allowing other members of 
management to participate in the throes and thrills of its development. 
In effect, we erected a pilot plant which was an interesting, provocative 
experiment and comparatively inexpensive. If we were wrong, the com- 
pany would not be badly hurt. Nor would it siphon off money from 
somebody else's budget. Further, the project was put in the hands of a 
vice president who had come to us from the department-store field and 
who had some knowledge of the other products we were adding to the 
line. In this way, a cooperative effort developed and risks were minimized 
as we examined the possibilities of a major revision of Grand Union's 
objectives. 

In any discussion of planning, one must consider the vast panorama of 
business motivations included in the simple word "objectives." There is 
the over-all corporate objective of rendering service and making a profit 
(they go hand in hand). There is the individual set of personal objectives 
of the men at the top and down the line. There is the "image," or public 
relation, objective, the employee-relations objective— to mention but 
two. Only through an imaginative approach can all these objectives be 
molded into a pattern that will inspire an organization. 



308 MANAGING PEOPLE 



ORGANIZE 

A corporation's objectives can be attained only through the concerted 
efforts of all its people. The best-thought-out plans cannot be realized 
without a sound organization structure. Recruitment, training, and de- 
ployment of manpower, however, are areas where textbooks, manuals, 
and organization charts must be supplemented by creative thinking and 
creative (often inspired) leadership. 

What kind of human material is necessary for the attainment of ob- 
jectives? The chief executive must choose with care his fellow travelers 
on his journey and the segments of the plan to be entrusted to each com- 
panion. A good batting average on the selection of the right man at 
every level is the overriding test of leadership. 

To develop leaders at all levels is a never-ending process of recruitment. 
Quality of talent-rather than quantity-is the chief force that drives the 
company along the road toward its objectives. 

Along with securing the kind of people upon whom a sound structure 
can be built goes the maximum delegation of responsibility and authoritv. 
This does not mean surrender of personal leadership or scrapping basic 
objectives. There is a fine psychological line between strong-armed dicta- 
tion and firm insistence on adherence to basic policies. 

The man at the top cannot afford to abdicate his fundamental leader- 
ship responsibilities, no matter how well organized the executive comple- 
ment below him. Leadership is expected of him. People prefer to exercise 
their own initiative, it is true, but they also respond to inspirational 
leadership. They want to be loyal not only to something, but to someone. 
As business becomes more complex, there is an increasing tendency 
to rely on "professional managership." In the briefcase of the profession- 
ally trained manager, you will find hypothetical organization charts, but 
there is no kit containing inspirational leadership. 

Regardless of the growing complexity of our society, personal leader- 
ship is still the most priceless asset-and it always will be. A "school for 
presidents" might be an interesting addition to our educational svstem. 
but I suspect a diploma would be no more than a license to attempt to 
prove that the graduate has qualities of leadership. 

In the case of our company, the problem of finding competent executive 
talent was aggravated by the rapid transition to an organization of large 
supermarkets. There simply was no existing reservoir of experienced 
supermarket executives to draw on back in 1947. 

To find such men, Grand Union began a regular program of college 
and high school recruitment. Scientifically constructed 51/0-hour aptitude 
tests were inaugurated to screen all executive and clerical personnel. 



DIRECTING THE ATTAINMENT OF OBJECTIVES 309 

These were supplemented by interviews in which the resuks of the tests 
were discussed. 

Managing a supermarket these days is a top-management assignment 
in its own right. The manager has to be acquainted with 5,000 to 6,000 
food products. He has to be a specialist in personnel techniques, materials 
handling, customer and community relations, sales, display, merchandis- 
ing, warehousing, and budgeting. In the new "super-supers," he may do 
up to $10 million in annual business at his own location and supervise 
200 employees. 

Because men must be specially trained for such responsibilities. Grand 
Union pioneered in the industry with a comprehensive eighteen-month 
management-education program. Then, recognizing that the rapidity of 
change in business would make some of any day's rules obsolete tomorrow, 
the company broadened its on-the-job training program to ensure that 
executives and store managers would be able to keep up with the latest 
advances in their fields. Grand Union was also one of the founders of the 
Advanced Marketing Curriculum at Michigan State University, Cornell 
University, and the University of Southern California. One of Grand 
Union's vice presidents serves as chairman of the Task Committee for 
the retail food industry in this educational program. 

To ensure competence throughout the organization, the company has 
training programs for employees at every level. Clerks are given formal 
courses in operating a check-out counter, stockkeeping, bookkeeping, and 
general courtesy and service to customers. A fully equipped "classroom 
on wheels" has been created to give a six-week on-the-spot course to 
employees of all new stores. 

In the deployment of personnel, we at Grand Union have done every- 
thing possible to eliminate layers of management. We believe the tend- 
ency to introduce additional layers should be combated vigorously. Layers 
usually grow in a climate of management deficiencies. For example, too 
often an executive who is a good administrator but isn't imaginative is 
supplemented with an idea man, and vice versa. 

COMMUNICATE 

Organization layers are the natural enemies of adequate communica- 
tion. Traditionally, the layers between the front office and the rest of the 
body corporate tend to insulate company officers from those who must 
carry out policies; the greater the number of layers, the more eftective the 
insulation (a variety of Parkinson's Law). 

Cutting out layers is also one of the best techniques of communications 
follow-through— of seeing that jobs are done the way you want them done. 
In a corporation with 15,000 employees and several million customers, the 



510 MANAGING PEOPLE 

chances o£ error through ineffective communication become a multiple of 
these numbers. 

The errors can be just as prevalent if you have failed to stimulate the 
subordinate to think for himself against a background of training that 
will help him to come up with independent answers that are pretty close 
to what yours might have been in the same circumstances. 

In our business, close communication with employees at the point of 
sale is a prime requisite. Management must be resourceful in inspiring 
these people on the firing line to use their own initiative in fulfilling 
assignments while, at the same time, staying close enough to the main 
track of company policies to assure over-all progress toward central ob- 
jectives. 

To solve this problem, we determined that the place for Grand Union 
executives was first in the field and second at headquarters. ^Vhen execu- 
tives are in the stores among the employees and customers, they are 
transmitting personal leadership in the most direct way possible. 

Executives from our general offices in East Paterson, New Jersey, are not 
permitted to hold divisional conferences there. Nor is it company policy 
to hold conferences with division managers in the divisional offices. AVhile 
making visits to the divisions, headquarters executives spend their time 
in the stores and hold their conferences with division managers as they 
drive between stores. 

A central-office executive in his office may be able to determine that 
certain outlets need more advertising or lower prices from a study of 
operating statements. But there is only one way to tell if the tomatoes 
are firm enough, the housekeeping orderly, and the customer service sat- 
isfactory. That is to make store visits. 

Getting exectuives into stores means conveying enthusiasm, devotion, 
and initiative person to person. 

If you cannot get the company executive to the point of sale, you can 
sometimes bring the point of sale to him. This we did in 1951 when 
Grand Union followed millions of its customers to suburbia. ^Ve moved 
our headquarters from New York City out into the real supermarket 
country of Bergen County, New Jersey. Here our offices were built atop 
what was at the time the largest and finest supermarket yet opened by the 
company. As Fortune later said in an article, "It is, under any circum- 
stances, a well-located and well-paying store. But it also serves as a pilot 
plant and proving ground for all Grand Union's plans and promotions. 
For Grand Union management and staff at headquarters, there is no 
remoteness and no escape from the actual battleground of the business- 
the store." 

In Grand Union's efforts to ensure close communication between top 
management and all the people who make up the company, we try to 



DIRECTING THE ATTAINMENT OF OBJECTIVES 311 

emphasize the human side. When a baby is born, a personal letter goes 
out and a gift is sent under separate cover. The same procedure is fol- 
lowed for an employee wedding. (Possibly these statements are in the 
wrong order!) 

We prepare a special edition of the company's annual report for our 
employees. The company paper, Progress, concentrates on employee news 
and events. We reward employees for useful suggestions. Last year over 
i,ooo suggestions were received from store employees. Once a year, a 
personal letter from the president goes to each employee asking him what 
he thinks can be done to improve the company. Each reply received is 
answered personally. A similar procedure is followed in getting sugges- 
tions and criticisms from customers. Postage-paid letter forms are promi- 
nently displayed in each store at a small convenient writing desk, and 
we invite customers to use them to write directly to the president. Each 
letter is personally answered and routed to the executive concerned for 
his personal action. We analyze the contents regularly to see if any partic- 
ular area of our operation needs special attention. 

Personal notes from the president also go to employees who have done 
outstanding jobs. Every letter— and all our executives are urged to write 
frequently— helps transmit the personal image of top management. Mail- 
ings go to employees' homes because we feel that the attitude of the 
whole family toward the employer is most important. 

- , ) 
A Two-way Street ' 

Another communication device employed at Grand Union is what has 
come to be known as "Clerk's Day." On that day all officers, headquarters 
and field executives from the president down to store level, are replaced 
by clerks. 

Participating clerks are selected from each store by vote of their col- 
leagues. In effect, employees in each store elect the fellow worker "most 
likely to succeed." The abilities of promising young men and women are 
thus brought directly to the attention of top management. Good talent 
that often has been overlooked is recognized through this device. 

The number of clerks participating in the program has grown from 
400 in 1950, when the event was inaugurated, to more than 1,200. Here 
is the epitome of communication— 1,200 key people directly exposed to 
management's thinking. 

One of Grand Union's more significant methods of communicating 
with employees is through its management boards. These boards, com- 
posed of employees at the manager level, meet once a month. In these 
meetings, without any executives of the company present, store employees 
discuss the company's policies and formulate specific recommendations for 
the improvement of the business. 



312 MANAGING PEOPLE 

The board members have the authority to request any executive of the 
company to appear before them. They often exercise this prerogative. 
Recommendations made by the board are transmitted in writing to top 
management. 

Whatever the recommendation, it is treated in the same way. It is 
referred to the appropriate company executive, who must submit a prompt 
answer in writing, either to report that the suggestion has been accepted 
and will be implemented or else to explain why the idea is being rejected. 
We try not to quibble in the answers. We say, "The suggestion has been 
rejected because . . ." 

Then the recommendations— and the answers to them— are mimeo- 
graphed and posted on bulletin boards in each store of the division from 
which the board was drawn. Every clerk can read the report and say 
to himself, "Well, I've been thinking about that and wondering ^\'hy the 
company didn't do it. Now I know." 

Providing a source of communication is the most valuable function of 
these management boards. When the employees share in the solving of 
the problems of the company, every worker— blue-shirted and white- 
collared— joins management in the momentum to attain the company's 
objectives. 

Grand Union not only offers a fine program of employee benefits, but 
sees to it that employees know all about them. Each employee receives 
frequent reminders of the benefits to which he is entitled and how to 
obtain them. Some reminders are in letter form, while others are notices 
on store, warehouse, and office bulletin boards. 

These activities and others, such as the use of closed-circuit television 
to broadcast our managers' meeting, help us to get closer to our em- 
ployees. Through them, we generate team spirit. We want employees to 
know that their individual efforts are appreciated by the companv. For 
in the final analysis, how well a thing gets done depends on ho^v well 
the man who has to do it understands the importance of the part he 
plays. 

The pattern of communication for any one company is not necessarilv 
suitable for another. In this area, an imaginative approach tailored for 
the individual company yields unexpectedly profitable returns. 

Communication is the only transmitter of personal leadership. There 
is no communication without both reception and sending. AVithout ade- 
quate communication, not only is there no intimate knowledge of com- 
pany objectives, but knowledge of the program to accomplish them is 
dangerously diluted. 

If objectives are to be attained, all employees must knoxv and under- 
stand what management is thinking-why it is doing what it is doing. 
Conversely, management should always know what employees are think- 



DIRECTING THE ATTAINMENT OF OBJECTIVES 313 

ing. This has been Grand Union's philosophy as it tries to maintain a 
two-way communications system linking company leadership directly with 
employees. 



MOTIVATE 

Communication does not stand by itself in the attainment of objectives. 
It is only effective if it motivates. The chief executive must engender 
within his co-workers the desire for corporate success and the enthusiasm 
to carry it forward. 

One way of motivating executives to want to do their best is by de- 
centralizing authority and responsibility. At Grand Union, we lean 
toward the "sink or swim" philosophy. It may frighten an executive at 
first. But we have found that when a competent man is left alone with 
his problems, after adequate briefing, he rapidly develops more confidence 
in himself, and the end result is less worry for us. 

We learned the need for decentralization the hard way. There is a 
hypothetical story going around Grand Union that I first decided to 
decentralize our business when I received the following telegram from our 
northernmost supermarket: "Bear gnawing at leg of customer. What do 
I do now?" 

A few years ago, we observed that our toughest competitors were not 
the larger food chains, but the smaller ones with comparatively few 
retail outlets in a compact geographical area. Why? Because they were 
tightly knit organizations with a team of locally experienced managers, 
each of whom was empowered to act in the light of his knowledge of the 
local situation. We decided that a large operation such as Grand Union 
could enjoy the same advantages if it made up its mind to behave like 
a smaller operation. 

So we made a concerted attempt to take the division away from the 
headquarters, to break the rigidity of lines of control between the main 
office and the field, and to give the division manager and store manager 
wide local latitude. It has worked. 

To be truly motivated, a manager has to have more than enthusiasm. 
He must feel confidence in his own ability to make the right decisions 
just as well as those above him could do. Such confidence must be self- 
inspired. Further, the executive must know that he has the right to form 
his own judgments and to act upon them, that he has not received just 
a set of hollow promises with the rights temporarily removed whenever 
the situation seems to be critical. You never learned to ride a bicycle from 
an instruction book. You didn't learn by watching someone else. You 
learned by getting on and riding— and you never had to be taught a 
second time! 



314 MANAGING PEOPLE 

Need for Financial Incentives 

Direct incentives are important tools of motivation. They convert in- 
dividual initiative and ability into increased productivity. The best 
incentive of all is one which makes the employee at any level feel a 
genuine part of the company. Grand Union's management effects this by 
granting the employee a share of both company profits and company 
problems. 

In a talk before the Sales Executive Club of New York, I was privileged 
to express the underlying philosophy behind the Grand Union policy: 

The American Way has given the average man advantages of which his fore- 
fathers never dreamed. But, at the same time, the industrial state has tended to 
standardize his thinking and actions; it has jeopardized his security, and it has 
taken away much of his liberty. More and more, the opportunity for the in- 
dividual to create ... to share in direct proportion to his contribution ... is 
being leveled off under the impact of collectivist forces. The future of our 
American system depends upon the extent to which we restore these opportun- 
ities to our people. This is the challenge that American business is facing. 

If our goal for American business is greater strength, our major effort must be 
toward greater productivity. The logical place for us to start on productivity is 
with our own employees. There are 37 million of them, each having a familv. 
Together they add up to over half our population. These millions can be made 
crusading champions of our system if their own experiences convince them that 
the American way is worth fighting for-if they realize that the loss of the 
American way of doing business means the destruction of the American way of 
working, living, and playing-and even, I might say, the American Avay of dving. 

How are we going to get all these people to help in strengthening American 
business? The obvious way is to make our 37 million employees participants 
in our business. The obvious way is to encourage them to be enterprisers in dieir 
own right. 

Today's business leaders have become the true custodians of economic 
justice. It is our responsibility to return to the worker his opportunities 
and to let all who contribute to the fruits of labor share directly in them. 

At Grand Union, employees share in the company's well-being through 
both incentive bonuses and stock-option plans. Giving our employees 
assurance that their return from the company will be in direct proportion 
to their contribution turned out to be more than just fulfilling a duty or 
good motivation. It proved to be good business, too. 

All management expectations were dwarfed by the results of our first 
incentive bonuses. Before we began any profit-sharing plan, we had half 
a dozen stores that were losing so much money that we. were getting 
ready to close them. We explained to these store managers that theirs 
were the most unprofitable stores in the chain. We said that, for one 



DIRECTING THE ATTAINMENT OF OBJECTIVES 31& 

year, they could retain one-half of any profit they made. In six months, 
each of the stores was showing a profit. 

Today, not only because it motivates, but also because it is plain good 
business sense. Grand Union employees from the president down through 
all store managers receive incentive bonuses in addition to salary. It can 
hardly be an accident that the company's earnings have been rising 
steadily ever since this profit-sharing plan was instituted. 

Further, every Grand Union employee with the minimum required 
years of service-from office executive to check-out girl-is issued options 
on stock of the company at 95 per cent of market value, with the options 
to be exercised at stated future dates. The success enjoyed by the company 
has made this a most profitable arrangement for our people. More im- 
portant, however, the stock options have succeeded in getting our em- 
ployees vitally interested in the progress of the company and the jobs 
they are performing for it. 

That employees appreciate such opportunities is shown by the fact 
that 4,500 workers-half of our full-time staff-have taken advantage of 
the stock-option plan. About 21 per cent of the common stock of Grand 
Union is either owned by or under option to employees. And these figures 
would be even higher were it not for the fact that only those employees 
who have been with us for five years (or in the case of managers, three 
years) may participate. 

Nothing would please us more than if it were practicable to close all 
our stores, warehouses, and offices one day each year so that all our 
employee-stockholders might attend the annual meeting of the company! 
Another motivation to which top management should give careful at- 
tention is that "urge for security" which characterizes both executives 
and workers. By this, we refer not to any complacent "world owes me a 
living" concept, but the assurance that the individual will realize the 
rewards of the objectives he helped to attain. 

After all, providing security is simply a logical way of allowing the 
worker to participate in the enterprise of which he is a part. Into the 
cost of each product should go a charge which represents the share of 
that product which will be given the worker upon his retirement. 

Should not the chief source of income for the retired or disabled 
worker come to him as a result of his own efforts? And should not the 
rate be in direct proportion to his productivity during his working years? 
In this way, business can help to avoid the dangers of the welfare state. 
In this way, we can make every man what he was meant to be in the 
first place— an enterpriser in his own right. 

Pensions should be springboards, not shackles. A plan which gives a 
worker protection in his old age only if he does not change his job is an 
infringement on his liberty. In our company's plan, provision is made 



316 MANAGING PEOPLE 

for vesting so that the worker may move freely from one position to 
another without sacrificing his pension rights. He has both security and 
hberty. Further, the system tends to spark his initiative and his pro- 
ductivity. 

Share Problems — As Well as Profits 

Along with profit sharing as a motivating tool goes problem sharing. 
We have found the latter just about as important in building and 
maintaining the spirit of "belonging." 

The first stage in Grand Union's problem-sharing program comes at 
the training level. Our endeavor is not only to tell people what to do, but 
also to teach why they should do it. So that our trainees can see where 
Grand Union as a whole is going and get a feeling of unity in the opera- 
tion, each is required to put in some time at every type of job in the 
chain. It is significant that among the graduates of our training course 
are two company vice presidents, the executive assistant to the president, 
more than half of our buyers and divisional general managers, and a 
large proportion of our supervisors and department heads. 

CONCLUSION 

In all the foregoing, I do not want to convey the idea that all is "s^veet- 
ness and light" in our particular company. By no means. ^Ve have had 
our serious problems and our failures. Nevertheless, we try not to let these 
setbacks deflect our aim of making every man in our organization an 
enterpriser-and initiator-in his own right. ^Ve have placed a premium 
on creative leadership, and it has paid off. 

We have tried to practice what we preach because we believe the 
attainment of our objectives is more dependent on better men than it is 
on better machines. Industry has moved ahead largely as a result of 
mass-production and mass-distribution methods. Progress has been made 
even though there has been only a partial understanding that the in- 
dividual is more important than the machine. 

Our society has exploited the possibilities of better machines but. to a 
lesser degree, the latent possibilities of individuals. Now \ve should re- 
discover the importance of man. Machines move mountains, but creative 
leadership is the prime mover of men. 




Hobart C. Ramsey 

CHAIRMAN OF THE BOARD 
WORTHINGTON CORPORATION 
NEW YORK, NEW YORK 



Hobart C. Ramsey, chairman of the board of Worthington Corpora- 
tion, has been associated with the firm for practically his entire business 
life. 

As a youth, he was imbued with a desire to "go to sea" and entered 
the New York Nautical School. He graduated in 1908 and served for 
two years in the United States Merchant Marine, earning his Second 
Officer's Certificate in the second year. 

Hobart Ramsey then entered the United States Naval Academy 
(class of 191^), where he was an outstanding athlete. He saw a great 
deal of action during World War I and rose to the rank of lieutenant 
commander before resigning from the Navy in 1920. 

After working as a naval architect for a few months, Mr. Ramsey 
joined the Worthington Corporation as a sales engineer in the export 
department. He became manager of the department in 1922 and in 
1929 was elected vice president in charge of international business. 
He spent most of the following six years abroad while reorganizing 
Worthington' s various European manufacturing operations. 

Mr. Ramsey became vice president in charge of engineering and 
manufacturing in 193^ and executive vice president in 194^. He served 
in this capacity until 1949, when he was made president and chief 
executive officer of the corporation. In 19^^ he was named chairman of 
the board, continuing as chief executive officer. 

Mr. Ramsey is a director of Worthington subsidiary companies in 
Canada, Mexico, Italy, Spain, and Japan. He is also a director of a 
number of American companies, including American Insurance Com- 
pany, Armstrong Cork Company, Electric Machinery Mfg. Company, 
Eurofund, Inc., National State Bank of Newark, New Jersey Bell Tele- 
phone Company, Prudential Insurance Company of America, Syming- 
ton Wayne Corporation, Tropical Gas Company, and a member of 



317 



the advisory board of the FIF Management Corporation (Financial 
Industrial Fund). 

In 1^4^ Mr. Ramsey helped to organize the Navy Industrial Asso- 
ciation (now National Security Industrial Association) and is presently 
a member of its advisory committee. He is treasurer and a trustee of 
the Thomas Alva Edison Foundation and has served as a member of 
the board of directors of the National Association of Manufacturers. 

Mr. Ramsey's other public affairs activities include trustee member- 
ship in the American Enterprise Association and New Jersey Safety 
Council, director membership in the New Jersey State Chamber of 
Commerce, regular board membership in the National Industrial Con- 
ference Board, and membership on the advisory committee of the 
Case Institute of Technology. 

He was assigned by the Secretary of the Navy in ip^^ to serue as 
one of three civilian members on the Committee on Organization of 
the Department of the Navy, established to study, evaluate, and out- 
line possible improvements in the Navy Department, with a view to 
strengthening this branch of the Armed Forces. 

In acknowledgment of Mr. Ramsey's achievements in the local and 
national business scene^ he was made in ip^8 an honorary member 
of the Rutgers chapter of Beta Gamma Sigma, an award given once a 
year to one outstanding businessman. 

In ip^cf he was named New Jersey Business Statesman of the Year 
by the Sales Executives Club of Northern New Jersey. 

Mr. Ramsey is married to the former Collette Wills Nicks. The Ram- 
seys have two daughters, Collette Christian and Janet Houston, and 
reside in Short Hills, New Jersey. 

April, i960 



CHAPTER 13 

Organizing 



Organization is the central task of business managers. A\ithout good or- 
ganization, the physical assets of a business— its plants and offices, its tools 
and equipment, its materials and supplies— cannot be used efficiently. 
Without it, too, the people employed by the business and responsible for 
its operation cannot perform to the best of their skills and abilities. And 

318 



ORGANIZING ^^^ 

no business, lacking good organization in depth, can hope to achieve its 
long-range objectives. 

These are the principal reasons why organization along logical and 
clearly defined lines of authority and responsibility is so very important 
to business operation. Yet, at the very outset, it would seem well to state 
that organization in business is designed basically to achieve, first, devel- 
opment of the people and skills necessary to assure the growth of the 
enterprise and the continuity of its operations, and second, a reasonable 
profit earned from making a worthwhile contribution in goods or services 
to the economic well-being of the community and nation. 

Most commercial enterprises are directed, in the last analysis, toward 
these ends. The organizing process combines into a cohesive structure 
the physical assets and human resources of an enterprise to serve its 
objectives best, but the ultimate aims of good organization are to per- 
petuate the business and to earn a profit from what is done. Unless these 
goals are achieved, the business will not prosper. 

This fact-that a private business enterprise in America must earn its 
own way-is one of the great strengths of our economic system. It elimi- 
nates wasteful and inefficient businesses, while bolstering the strong 
competitive factors that help to produce the best possible performance 
from our total economic efforts as a nation. 

In the United States, no private business is given a "blank check" to 
guarantee its continued operation. It must make its own future by turn- 
ing in a profitable performance from its current activities. This profit 
provides the enterprise with the muscle and sinew it requires to stay 
healthy. It enables it to maintain and improve its facilities, to conduct 
continuing research for the betterment of its products, to expand its 
operations, and to meet its obligations to its investors or owners and to 
its employees, suppliers, and the general public. 

Organizing a business for efficient operation is the essential attribute 
for making all this possible. 



THE EARLY YEARS 

In the beginning, a new business enterprise revolves essentially around 
a single person or, at most, several key people. Such has been the story, 
without exception, of every business venture. An individual, or several 
people together, conceive an idea for goods or services that has commer- 
cial value and dedicate themselves to its development. They set up shop, 
and a business is born. 

While a business is small and establishing a position in its field of 
endeavor, its principal needs are easily listed. It must have (i) a good 
product which other people want, (2) sales in profitable and continuing 



320 MANAGING PEOPLE 

volume, (3) operating facilities consistent with its present and immediately 
prospective needs, and (4) the necessary working capital acquired, either 
singly or in combination, through the sale of stock, by long-term loan, or 
by gift or inheritance. These items represent the core of any business 
operation, and in the beginning there is little more to it. The organiza- 
tion structure is pretty much a pooling of the knowledge and skills of a 
few owners or managers. 

Small Business Organization 

In their early years of operation, the European affiliated companies of 
the Worthington Corporation offer an excellent illustration of small 
business organization. Our five affiliates in Germany, Austria, France, 
Italy, and Spain all started as little businesses. In most instances, they 
began life as small service organizations, supplying trans-Atlantic steam- 
ers with replacement and spare parts for Worthington products installed 
on shipboard. Later, they branched out into selling certain ^Vorthington 
products made in America, and thereafter they further expanded their 
range of activities by starting manufacturing operations of their o^vn. 
Today, they rank as substantial businesses, representing valued and im- 
portant links in our world-wide engineering, manufacturing, selling, and 
service operations. 

But organizationally, what were these companies in the beginning? 
They were very small enterprises. The manager of each company made 
most of the decisions, exercised complete authority over the activities of 
the employees, and out of his own best judgment, without benefit of our 
modern management techniques of today, determined the goals of the 
business. Each company had organization, but it was essentially informal 
and uncomplicated. All real authority and responsibility were centered in 
the manager. He did most of the thinking, problem solving, and decision 
making. 

To anyone unfamiliar with business management, the small business 
with its centralized control may seem autocratic and unresponsive to 
changing needs and circumstances. Sometimes this may be so. But the 
truth is that the rigid, inflexible small business usually does not survive 
over the long pull. Companies of this type are the ones we so often hear 
about as failing. 

On the other hand, there are literally thousands of small companies 
where the reins of authority are tightly held that have achieved outstand- 
ing success. Why? Because even though they may be managed by onlv a 
few key people, all have one thing in common. They possess an opcn- 
mindedness that readily accepts and adapts to changing conditions. 
As a practical matter-and business to be successful requires a large 



821 

ORGANIZING ^^^ 

measure of practicality-a small business can operate efficiently only on 
the basis of a few key people calling the turns. The small business man- 
ager, being the most conversant and knowledgeable person in his organ- 
ization as to his company's product and market, usually is the best 
qualified to make the major decisions affecting its operations. To be sure, 
he must be supported in all key positions by competent and energetic 
people. He must solicit and consider their viewpoints, train them, and 
encourage them to develop, step by step, to accept greater responsibility. 
But, by and large, he cannot operate his business by "committee" or 
delegate to his organization at large his responsibility for managing its 
affairs. 

The reason for this is often hard to accept, but it is sound. In small 
or large organizations, group decision making or "management by com- 
mittee" as a normal, regular practice just doesn't work. Ideas that are 
repeatedly sifted and weighed by groups of people lose their original 
form and shape, and concrete proposals for action become so compromised 
through reconciling different points of view that their initial clarity 
of purpose is lost. Consequently, while it is always important and neces- 
sary to consult with others and to have adequate factual information 
upon which to act, some one person in the end must decide. For this 
reason, centralized control of small business under a single manager not 
only is a proper form of organization but also represents the most 
efficient practice. 

My own career in Worthington early brought me face to face with the 
principle that decisions are made by one person. In the late 1920s, the 
corporation sent me to Europe to reorganize and strengthen the opera- 
tions of our overseas affiliates. In almost every instance, major changes 
were required. After I had been on the job for a while, I realized that 
if these changes were to be made, I alone would have to be responsible 
for them. The people managing the local companies, although usually 
helpful and certainly dedicated to their businesses, were not inclined to 
accept new ideas and practices merely on the strength of a suggestion 
from me. 

Fortunately, I had the authority to accompany the responsibility 
Worthington had entrusted to me. At all times I sought first to secure 
the agreement of a local manager before taking any action. However, 
when it became clear that his acceptance could be gained only after 
months of persuasion-valuable time which could not be lost in the best 
interests of the organization as a whole— I had no alternative but to go 
ahead and put into practice the changes that seemed necessary for the 
improvement of the business. It was a good lesson for me in the inescapa- 
bility of final decisions resting with a single person. 



322 MANAGING PEOPLE 

Benefits of Small Company Experience 

Experience in managing a small company is invaluable. The man who 
gets it is fortunate indeed. It will train him well in the essentials of 
successful business operation and develop in him the organizing and 
administrative skills necessary for good management. 

At the same time, management of a small company develops a total 
business perspective— a habit of looking at all the parts that make up 
an enterprise. The manager of a small business must know his product, 
how it is made, and how and to whom it is sold. He must be conversant 
with concepts of finance and business economics. He must be a good 
planner and a good leader so that his organization will achieve its 
established objectives and goals. And in his day-to-day associations with 
others, he must be a skillful practitioner of human relations. Thus he 
must know and understand people. 

In providing this kind of broad experience, management of a small 
company molds qualities that are preeminently desirable in people -^vho 
fill top-management positions in large organizations. It builds self- 
assurance in a man and develops his capacity for analytical thought. 
By exposing him to all parts of an enterprise, it transforms him into a 
good executive "generalist"— a person with a w^orkable grasp and under- 
standing of all the major business functions and of the business as a 
whole. It takes years to acquire this breadth of knowledge. The old 
adage that "variety is the spice of life" is readily adaptable here. \^arietv 
in depth of experience is the essence of the good executive "generalist." 

No matter how rounded an individual's business exposure may be, 
however, there will always be some things he has never encountered and 
therefore never learned. Consequently, every good manager must be able 
to respond to a certain amount of "forced development," that is, acquiring 
certain knowledge under stress. In my own case, my first real introduction 
to the complexities of corporate accounting came on the ship that -^s'as 
taking me to Europe to work with our affiliated companies. My teacher 
was a shrewd Scotsman, the corporation's assistant comptroller, "^sho 
was making the voyage with me. The entire joiuney at sea was spent in 
poring over balance sheets, budget data, accounting information, and 
other financial material. It was telescoped training of the most intensive 
sort all the way to Europe. 

GROWTH, DIVISIONALIZATION, AND PEOPLE 

As a business grows, its organization needs grow with it. There are 
more things to do and a greater number of matters requiring attention. 
New products are added; manufacturing facilities are expanded: more 



828 

ORGANIZING 

people are employed to work in sales, engineering, manufacturing, and 
administration; and new functions begin to appear, such as product 
research, marketing research, employee training, and public relations. 

This growth, accompanied by the burgeoning of many new functions, 
is normal and essential if a business enterprise is to enjoy long-term 
success. I have observed the process in my own company for the past 
twenty-five years. In 1934 Worthington operated just three manufacturing 
facilities, producing twelve different products for various industrial and 
commercial applications. Its management was handled by five principal 
officers, including the president. By 1944 the business had grown to seven 
manufacturing plants, producing twice the number of products built 
ten years earlier, and nine principal officers, including the president, 
were required to manage the enterprise. Today, the corporation comprises 
eighteen separate operating divisions and two wholly owned subsidiary 
companies. Its operations have been completely decentralized along 
divisional lines of authority, responsibility, and profit accountability. 
Twenty-two principal officers manage its affairs. 

Growth, therefore, brings marked changes in organization structure 
and in organization requirements. The management practices of the 
small company, with its nucleus of a few key people, must give way to a 
broad delegation of business responsibilities. Whereas a small business 
requires only a few managers, a large one takes many. Whereas respon- 
sibility and authority are centralized in small enterprises, they must be 
widely dispersed in large ones. And whereas only minimal needs exist 
for formalized organization in small business, such instruments as organi- 
zation charts, job descriptions, and policy manuals become increasingly 
important as a company grows. 

Planning Organization Change 

Reorganization of a business-changing it from one of centralized con- 
trol to a form of decentralized operation-requires careful planning. 
Answers must be found to such questions as (1) How should individual 
operating units be set up? (2) Who should manage them? (3) What 
should be the limits of authority and responsibility granted to each unit? 
(4) What degree of control should be maintained at the headquarters 
level? (5) When should the changes be placed into effect? (6) Should 
the changes be made all at one time or introduced gradually? A thorough 
job of planning requires that all these questions be considered together. 

Since business organization is designed basically to help achieve 
profitable operating results, decentralization of an enterprise often pro- 
ceeds most logically along product lines. Fundamentally, this is a matter 
of placing like products together, that is, manufacturing similar or related 
products in the same producing facility. 



324 



MANAGING PEOPLE 



There are a variety of significant benefits to be gained from this 
approach. For one thing, plant facilities normally can be utilized more 
efficiently. Also, greater coordination can be achieved in selling efforts, 
since particular products usually serve particular markets. And people 
can be placed into homogeneous work groups with common objectives 
and interests. 

In addition, in the process of divisionalizing a business according to its 
product lines, it is simultaneously being set up to reflect the profitability 
of its various markets. In Worthington, for example, we have a separate 
division for that part of our business that serves the air-conditioning and 
refrigeration field; another for that part concerned with companies that 
produce and distribute natural gas; and so on. By having this form of 
organization, we are always in the position of knowing where we stand 
in terms of our performance in particular fields. 

Selecting Management People 

No divisionalization of a business, however, will be any better than the 
quality of the people selected for the key management spots. Therefore 
the choice of the people who are to be responsible for operating its 
various units unquestionably ranks as the most important and crucial 
task of all. If serious errors of judgment are made, if people deficient in 
management skills or incapable of growth are placed in critical positions. 
the entire organization will suffer. 

A measure of the importance of the selection process can be seen in 
the typical organization chart of a Worthington division (Figure 13-1). 





GENERAL MANAGER 








































Manager 

Sales 

and 

Service 




Manager 
Engineering 




Manager 
Manufacturing 


Division 
Comptroller 


Manager 
Purchasing 




Manager 

Employee and 

Community 

Relations 




Manager 

Quality 

Control 














1 




1 










1 



Fig. 13-1. Typical division organization. 

The chart shows how all seven of the key division functions— sales and 
service, engineering, manufacturing, finance, purchasing, employee rela- 
tions, and quality control— report directly to the general manager of the 
division. Thus, including the general manager, there are just eight key 
positions in the organization. 

Under this form of organization, the general manager is comparable 
to the small business owner or manager. He has full operating re- 
sponsibility for all the major functions and is accountable to the corporate 



325 

ORGANIZING 

management for their proper performance. As with the small business- 
man, authority is largely centralized in the general manager, except that 
it is broadly delegated by him to his seven key people with specific 
functional responsibilities. 

Thus the chart illustrates how just a few principal positions will 
constitute the foundation of an organization and underscores the vital 
importance of filling them with the right people. Because the position 
of general manager is far-reaching in influence and power, the choice 
of the person to fill it naturally commands top priority. But the selection 
of his key associates is equally important. No matter how effective an 
individual a general manager may be, he will be seriously handicapped 
unless he is supported in each of the principal division functions by 
enthusiastic, competent people. 

The availability of qualified people for replacements in the key posi- 
tions also is the ultimate test of how well management has done its 
job, down through the years, of developing people to accept greater 
responsibility. Such development must be done on a continuing basis. 
Otherwise, how can an organization ever expect to have the people to fill 
its top positions when the time comes? 

The importance of constantly developing people and of bringing them 
along to accept greater responsibility was forcefully brought home to 
me as a young man. In my work with our European affiliates, I found 
one company in particular that had become careless about its future 
organization needs. It was operating without forward planning and 
without thought of the people it would require in the later years if it 
were to remain in business. There were virtually no young men in the 
organization, and all the existing management staff was getting old. 

I felt required to take bold action. I organized a recruitment campaign 
in the cities and at the nearby universities to get, within a short period 
of time, twenty young men-the very best we could hire. The men we 
employed had no experience in our business. But they had youth and 
drive and the desire to learn. And they could be taught. We gave them 
the training and knowledge they needed to do their work efficiently 
and gradually placed more and more responsibility on them. They 
developed splendidly and became valued members of that company. 
Most important of all, they were in the organization and ready to move 
forward in position and responsibility as the older men retired. 

That experience made an impression on me that I have kept all my 
life. 

Giving Authority 

A manager must be given the "green light" to act-the authority to do 
whatever is proper and necessary, within the framework of his responsi- 



326 MANAGING PEOPLE 

bility, to perform the job assigned to him. Without such authority, he 
is like a man in handcuffs— dependent on his "keeper" as to the move- 
ments he may make. It will do no good, and certainly be a great disservice, 
to the development of an organization to burden a person with heaw 
responsibility but deny him the authority to carry it out. A man who must 
constantly turn to someone else for a decision as to what he may do will 
never develop the self-sufficiency and personal confidence required of 
management people. 

Equally important in this regard is to require managers to establish 
their own objectives and to make their own plans as to how to reach 
them. This has the very great advantage of forcing them to think for 
themselves. Additionally, it is thoroughly consistent with the concept of 
giving authority in relation to responsibility. Why give a manager the 
authority to act but say to him, "You have no obligation to plan what 
action should be taken. We will do that for you"? Such a position is 
illogical. The authority to act and the duty to plan the action taken 
are inseparable. They are both parts of the same whole. The most fruit- 
ful and beneficial development of people occurs when the two are kept 
together. 

I well remember the authority and obligation to plan that accompanied 
my work with our European affiliates. In offering me the opportunity, the 
president of our corporation at that time, and still a member of our 
board of directors, said to me: "You can have all the authority you want. 
You can hire, you can fire, you can liquidate part of the business if you 
like, and I won't interfere. But there's one thing you can't have-vou 
can't have any money. It's up to you to improve these businesses without 
coming to us for the money to do it." Here was all the authority any 
one could ask for. But it was also a challenge to me to plaji for the im- 
provement of our overseas companies without using the financial 
resources of the domestic organization as a crutch to lean on. 

Plans and objectives, of course, must be realistic. It is a waste of time 
for a manager to indulge in wishful thinking. Only attainable objectives 
are worth striving for. A person who sets his heart on reaching goals that 
are beyond hope of achievement is heading toward frustration and 
disappointment. Objectives should always bear the stamp of reasonable- 
ness and lie within reach of success. 

Putting Change into Effect 

There comes a time in organization development when nothing ^vill 
suffice except to act. The organization changes, necessitated by gro^sth 
and the increasing complexity of the business operations, can no longer 
be delayed. By this time, the careful planning preparatory to change 
should be done; the units of the business should be properly grouped: 



ORGANIZING 



527 



and the decisions reached as to the people who are to serve as managers. 
Now what? 

This is a crucial point in organization relationships and an acid 
test of good leadership. When the time for action has arrived, the best 
approach is to act decisively. Dilatory tactics or quarter steps in the 
direction of implementing the desired changes will only compound the 
difficulty of doing what it has already been decided to do. No one is 
helped by a practice of "letting things simmer," least of all the organi- 
zation. 

By the same token, it is very important not to make too many changes 
at the same time. Most people are characteristically reluctant to face 
change, even when it represents an improvement over what they had 
before. Thus it is well to recognize this trait and to allow time for them 
to adjust to new circumstances before introducing additional measures. 
Although there is no precise timetable to follow, a workable rule is to 
pace organization changes just a little faster than the apparent ability 
of the people to adjust to them. By staying within this boundary, the 
program never really gets ahead of itself. 

The Need to Communicate 

Changes made in organization also must be communicated. People at 
all managerial and supervisory levels must understand the nature of the 
changes, why they are being made, and how they affect them in their 
jobs. This step is essential to gaining acceptance of whatever is done. 
It generally requires the use of both written and oral communication, 
with the best results invariably coming from the spoken word. 

In addition, whenever possible, it is a good idea to talk informally 
with key associates about possible changes well in advance of the time 
chosen to introduce them. This may not be desirable or possible in every 
situation, but talking about changes before they occur generally eases 
the later problem of having them accepted. When this practice is followed, 
however, it is important that ideas be presented on an exploratory basis 
—as something to be given further thought— and that others have an 
opportunity to express their views. 

When a company is being decentralized, its communication needs are 
especially great. Individual operating units must have a clear under- 
standing of their objectives and responsibilities. Every person in manage- 
ment needs to know the limits of his job and how it relates to the jobs 
of others. Without clear-cut understanding of this type, it is impossible 
to build a harmonious and efficient team organization. 

In recent years, organization charts have been used extensively to show 
functions and responsibilities, especially in large companies. In reflecting 
how particular divisions, departments, and units are set up, they un- 



gog MANAGING PEOPLE 

questionably have considerable value as information devices. Their 
purpose, however, is sometimes misconceived. Some people lose sight oi 
the fact that organization charts are designed essentially to reflect how 
things are done— not how they may be done. They start their task of 
organizing by preparing a chart. Normally, this is not good procedure. 
A better approach is first to establish the organization, which includes 
putting the right people in the key positions and gaining their under- 
standing of their interrelationships, and then to prepare a chart to 
visualize what has been done. 

On occasion, of course, an important position may appear on a chart 
before it has been filled. It has been included in the interest of showing 
its relationship to the rest of the organization. When circumstances favor 
this course, it is a perfectly satisfactory procedure, because the chart 
does reflect correctly how various functions interrelate. Some overriding 
consideration merely has made it desirable to communicate the informa- 
tion before a person has been selected for the position in question. 

One must be cautious, however, not to allow the organization chart to 
become a sort of "organizational straitjacket'-something impervious to 
change. The alignment of a large company's functions and responsibilities 
is constantly shifting. A growing business continually faces new needs 
and demands, which can be met only through appropriate organization 
adjustments. Consequently, a flexible attitude toward organization struc- 
ture, including the division of functions as shown on the organization 
chart, is an important quality of good management. 

Auditing Progress 

Organization changes cannot be introduced and then forgotten. 
Progress must be watched carefully, and periodic "readings" taken to 
evaluate how things are working out. One must stay alert to the sig- 
nificant financial and statistical information that reveals the state of 
health of the business. Such data will disclose soon enough whether the 
changes are producing the desired results. 

But patience in expecting results is important. Just as it requires time 
to obtain an education or to acquire new skills, so time is required to 
realize the benefits of improved organization structure. ^Vhenever people 
are placed in new roles embracing greater responsibility, they must 
make a major adjustment. After they have been in their new situations 
for a while, they begin to feel at home with them. Then they start to 
show results— but not before. 

This lapse of time before organization changes begin to pay off can 
prove frustrating to an individual who is used to "getting things done" 
but who no longer has the responsibility. Such a person is tempted to 
inject himself into the picture-to start running functions and activities 



ORGANIZING ^^9 

delegated to others. He must resist such inclination; he must not interfere. 
Nothing will break the spirit of a man faster than to have someone, not 
responsible for the work, but his superior in the organization, constantly 
harass him in the performance of his assignments. 

However, managers must be trained to bring recommendations— and 
not just problems— to their next-higher level of authority. An important 
part of management is to marshal and analyze facts and then submit a 
recommendation for action based on the findings. To permit managers 
to follow the practice of merely presenting problems, without recommend- 
ing proposed solutions, does violence to the principle of developing 
people to accept greater responsibility. 

Another thing to insist upon is that managers develop a financial point 
of view. A man put in charge of a company division will never be a 
success unless he understands, first and foremost, that he must earn a 
satisfactory rate of profit from the operations for which he is responsible. 
In Worthington we have a yardstick of measuring a general manager's 
performance from a financial viewpoint in terms of the profit earned 
on the total assets employed in his division. Use of this standard helps to 
imbue our general managers with an attitude toward money that is 
characteristic of the small, independent businessman. They know that 
it is up to them to make their divisions acceptably profitable. 

In matters requiring large financial resources, such as an expansion 
of facilities, the corporation naturally lends assistance. In these cases, 
the manager must present information acceptable to the board of direc- 
tors to justify the additional investment. 

Facing Up to Problem People 

Some of the people selected for management positions probably won't 
make the grade. When this happens, it is always unfortunate. It presents 
a difficult organization problem. Yet the truth is, no business can tolerate 
for very long an ineffective person in a sensitive, influential spot. Although 
that person may have the best of intentions, be loyal and hard-working, 
his lack of ability for the particular job he holds tends to upset the proper 
functioning of the rest of the organization. The only remedy is to remove 
him. 

Facing up to the removal of a man from a job he cannot do is never 
pleasant. His friends in the organization often tend to plead his case- 
to ask that more time be allowed for him to prove his value. If he has 
already received sufficient time in which to demonstrate his ability, it is 
a mistake to grant more. The additional period usually only aggravates 
an already unsatisfactory situation, and the original decision to relieve 
him of responsibility still must be carried out. No one is helped, neither 
the organization nor the man. 



330 MANAGING PEOPLE 

Indeed, the fact is that both the organization and the man are better 
off if the necessary action is taken without delay. In my own career, 
whenever I have had to remove a person from his job, I have made a 
special effort to talk with him at length, explaining in detail the reasons 
why. In more instances than not, the affected person has told me later 
that he was both happier and more productive in his new situation. 

SPECIALIZATION IN BUSINESS 

Modern business has become a complex of specialized functions and 
activities. When I first assumed management responsibilities years ago, 
a manager wore many hats. He had to cope with problems that had little 
direct relationship to one another. He might be responsible for the 
engineering of a product and, at the same time, its manufacture and sale. 
His involvement with these functions might make him the person in 
charge of hiring new personnel for the engineering, manufacturing, and 
sales functions and the organization's expert on labor relations. In 
short, he had to be a Jack-of-all-trades, ready at almost any time to rise 
to the challenge of a new situation. In a small business, he still does. 

But the structure of a large and growing business today is entirely 
different. New disciplines, new specialities, and new skills now appear 
on the scene in rapid succession. The complexities of modern technology, 
the emergence of new and powerful groups in our society, and grossing 
interdependence of the components of our economic system, the rising 
level of education, the rapid advances of science-these and other factors 
are increasingly making of us a nation of specialists. Business organization 
necessarily has had to adapt to the circumstances. 

Operation of almost any business now involves some degree of speciali- 
zation. This is true of small companies as well as large ones. But it is 
in large organizations that the greatest diversity of specialized skills is 
found. Such activities as research and development, industrial engineer- 
ing, marketing research, marketing planning, employee relations, public 
relations, patent law, and management development have become 
important and necessary parts of business operation. People now spend 
years in acquiring proficiency in just one of these areas— or even in only 
a segment of an area. Often they devote their entire working life to it. 

Staff groups having specialized skills, knowledge, and experience are 
an essential part of any large industrial organization. They consult with 
and supply to line management the professional know-how so vitallv 
important to the solution of unusual technical problems and sound 
decision making, involving matters beyond the general scope of operating 
personnel. Through constant study and research in their separate fields of 



ORGANIZING 331 

activity, they stimulate and promote progress in all aspects of the enter- 
prise. 

Imagine just two or three key people trying to cope with today's 
business complexities. In our present-day world they would have to be 
self-sufficient in product design and development, marketing and dis- 
tribution, manufacturing methods and techniques, plant construction 
and layout, finance and credit, union relations, advertising, government 
regulations, personnel administration— just to name a few of the many 
things that now demand attention. No one could possibly have this 
breadth of knowledge. 

Specialized staff groups, therefore, have become a necessary concomitant 
of modern organization structure. The days when two or three persons 
could divide among themselves the responsibility for the specialities of a 
large business are gone forever. 



MODERN CORPORATE ORGANIZATION 

For a large or small company, there is no "perfect" organization struc- 
ture. The particular form developed depends on a number of variable 
factors, such as the type of business, the quality of the management, the 
degree of specialization, the objectives of the enterprise, and the method 
of measuring results. In order to illustrate how a large company is put 
together, however, let's use as an example the structure of the Worthing- 
ton organization at the corporate level of management. 

The accompanying chart (Figure 13-2) shows Worthington's corporate 
structure. Certain principles of large company organization are demon- 
strated. Chief among these are: 

1. There is a clear distinction between the "staff" and "line" activities. 
The staff functions are portrayed on the middle portion of the chart, 
while the line groups or operating divisions are shown at the bottom. 

2. Both staff and line groups are responsible, ultimately, to the top 
corporate officers— the board of directors, chairman, and president. 

3. The line operating divisions are divided into groups according to 
type of product activity, with each group responsible to a group vice 
president. The group vice presidents report on the activities of their divi- 
sions through the president. 

4. The corporation's overseas business (shown at the extreme right of 
the chart), representing its export trade, the operations of its foreign 
subsidiary companies, and its relations with affiliated companies abroad, 
is organized under a single officer, a vice president of international opera- 
tions. 

The distinction between the staff and line is especially important. The 



<2q 










3Q 










332 



J 



ORGANIZING 



333 



Staff functions, headed by vice presidents, are the centers of the corpora- 
tion's specialized skills. They have highly trained personnel— experts in 
their particular fields of interest— who serve as consultants to the operat- 
ing divisions. These staff specialists, however, have no authority over what 
the operating divisions do. Rather, it is their function to assist, advise, 
and counsel with the operating groups on matters requiring specialized 
knowledge. 

In addition, the corporate staff officers and their specialists work with 
the divisions in planning further improvements in division operations 
and in analyzing and recommending solutions to difficult problems 
within their areas of specialization. They also perform the important 
services of interpreting corporate policies and of coordinating corporate 
activities on an over-all basis. 

Conversely, the line groups function in a strictly operational capacity. 
They represent the "profit centers" of the corporation, that is, the 
units of the business held responsible for earning a profit from their 
operations. Because of this responsibility, they are vested with all the 
authority necessary to achieve their objectives. As previously mentioned, 
this authority is largely centered in the division general manager. 

The group vice presidents provide the essential link between the line 
groups and the corporate staff. They are our chief operating officers. 
They are the representatives of the divisions at the top-management 
level and reflect to them the policies, objectives, and interests of the 
corporation as a whole. As thoroughly experienced "line men," they are 
responsible for guiding their particular divisions toward the achievement 
of their goals. 

In making a clear separation between our staff and line activities, we 
believe we have developed a sound organization structure. To be sure, 
it has imperfections which we would like to eliminate, and we are 
constantly on the lookout for ways to make further improvements. 

Evaluated in total, however, our form of organization has stood up well 
in actual practice and successfully weathered the impact of fluctuating 
economic conditions. It has enabled us to have centralized corporation 
policies, and yet allowed for the decentralized administration of them. 
It has placed authority to make decisions where the actions take place, 
thereby giving us greater agility and speed of decision than would be 
possible if we had close, centralized control. 

For our people at both the staff and line levels, it has provided broad 
opportunity for continued personal growth and development. And in 
the case of our operating divisions, it has given them the degree of 
autonomy they require for the planning necessary to achieve their ap- 
proved goals. 

Merely to hold its position in our present-day economy, a business 



334 MANAGING PEOPLE 

must expand in like proportion to the markets it serves. Growth, in 
contrast to expansion alone, is achieved when the business develops and 
improves in its general performance at a relatively greater rate. 

Expansion and growth must be planned on a long-range basis with 
clear-cut objectives. Long-range planning is the direct responsibility of 
the chief executive officer. Such planning may be the personal part-time 
effort of the top man in a small business, but in a larger enterprise it 
becomes the full-time task of at least one well-qualified officer reporting 
directly to the chief executive officer. 

Executives with line and staff responsibilities are principally engaged 
in day-to-day and year-to-year planning. Their efforts in this direction, 
coupled with those of the officer charged with long-range planning (in 
terms of five years or more), permit the growth of the enterprise to 
proceed with the flexibility, balance, and sustained directness essential 
to achieve established goals. 



LOOKING AHEAD 

In our discussion, we have seen how organization begins with a small 
business, containing only a few key people, w^ith authority and responsi- 
bility basically centralized in a single person. We have observed how 
organization requirements increase with business gro^vth, bringing a 
divisionalization of the operations and a broad delegation of the respon- 
sibilities to many people. We have noted the rise of many new and 
specialized business functions. And we have reviewed some of the principal 
elements of a decentralized corporate organization. 

Now for a moment, let's look at the future. What does it indicate in 
terms of organization needs? What kind of people are likely to run an 
enterprise? To the extent that tomorrow can be foreseen, what will be 
its demands? 

There is little doubt that further improvement will be required in the 
organization of our business operations. Two principal reasons lie behind 
this. First, we live in an age of growing competition to America's 
economic superiority. Many nations, especially the European countries, 
are beginning to challenge our leadership. They are learning from us 
and applying at an accelerating pace the principles of our private-enter- 
prise system— individual incentives and rewards, mass production, a 
broad base of consumer purchasing power, and continuous technological 
progress. They are putting these lessons to work for their o^vn best 
interests, raising their productivity and the quantity and quality of the 
goods they have to sell in world markets, including the United States. 

To meet this challenge, American business will have to sharpen its 
own competitive ability. We shall have to become more efficient, less 



ORGANIZING 335 

wasteful in many of our practices, and more sober and realistic about the 
economic facts of life. Part of the task will require that we make better 
use of the talents of our people and of our abundant natural and physical 
resources. This will demand organizing skills of the highest caliber. 

Secondly, the very nature of modern business is creating a need for 
better organization. The halcyon days of relative simplicity have vanished. 
Everything in business is now more complex than it was— and the com- 
plexity will probably increase. Two factors are chiefly responsible. One 
is the breathtaking pace of new scientific and technological develop- 
ments; the other, the increasing specialization that stamps all walks of 
economic activity. As a result, the problem of achieving an efficient and 
harmonious organization is greatly complicated. Add to this the fact that 
business now is deeply involved in many matters unrelated to its normal 
day-to-day routine, such as various community activities and legislative 
developments at both the national and state levels, and the strain placed 
on organization becomes even more severe. 

Working within this environment, our business managers of tomorrow 
will have to be extremely competent. They will have to be clear thinkers, 
good planners, efficient administrators, and increasingly creative. Espe- 
cially in the areas of administration and creativeness are the demands of 
the future likely to prove the greatest. The profession of management is 
moving rapidly away from an emphasis on how to get things done to an 
emphasis on how to get things done better. In the process, administrative 
ability and creative thinking are becoming prime management qualities. 

What kind of person possesses these qualities? There is no exact 
answer other than that by preference he chooses management as a 
profession. But I will venture a prediction. In the years ahead, the person 
with broad business background— with "generalist" education, training, 
and experience— will more often than not prove the more promising 
candidate for top-management positions. He will be selected over the man 
with only highly specialized skills. The vision, administrative ability, 
and qualities of leadership required of modern management are more 
likely to be found in the generalist. 

So, in the final analysis, the key to efficient organization in the future 
lies in having well-rounded and thoroughly experienced people, just as 
it always has in the past. Problems of product design, problems of sales 
or manufacturing, problems of almost any nature fade if a business has 
qualified people to do its work. 

The trick is to find them— and then place them in positions where 
their talents can be integrated with the organization and used to greatest 
advantage. The business that is able to satisfy this requirement on a 
long-range basis need have little fear of its continuing ability to succeed 
in our ever-changing and highly competitive world-wide economy. 




"^h'^ll 



Fred G. Meyer 

( I [AIRMAN OF THE BOAUD 

J 1;ED MEYER, INCORPORATED 

J )RTLAND, OREGON 



The name of Fred Meyer is a legend to those who know retailing. He 
was raised in Brooklyn and grew up in the grocery business— his father 
and four of his uncles each operated an indepeiident small corner 
store. At the age of twenty he left New York forever to try his luck 
at panning gold in Alaska. Had he been able to get permission from 
Czarist Russia to prospect in Siberia, there 7night never have been a 
Fred Meyer, Incorporated. 

He left Alaska with little gold but a lot of ideas and headed for 
Portland, Oregon. His initial venture in Portland was selling coffee 
house to house in an outlying suburban district. The enterprise met 
success and led to establishment of routes that ultimately covered the 
city. These, in turn, gave birth to a central coffee store in a downtown 
farmers' market which proved highly successful. A complete food line 
and other items were soon added. 

Various additional ventures followed, including the nation's first 
self-service drugstore, the prepackaging of sugar, flour, beans, and other 
staples previously sold only in bulk, and other innovations now a basic 
part of self-service stores everywhere. These successes led to the open- 
ing in ic)20 of the first general self-service store in Portland and marked 
the beginning of big expansion of Fred Meyer enterprises of various 
types in merchandising lines. 

His Northwest empire today includes three stores in doicntown Port- 
land, fourteen major shopping centers in the Portland metropolitan 
area, and four in Seattle, Washington. The centers average 60,000 
square feet of floor space and are among the most modern anywliere 
in the United States. The program of expansion has been greatly ac- 
celerated since ip$o. Seven large centers, each representing an invest- 
ment of about $1.^ million, have been built since that time. Additional 

Photo by Commercial Developers, Portland, Oregon 



336 



centers are being constructed at the rate of about two a year with a 
goal of eighteen set for each succeeding ten-year period. 

In addition to shopping centers, the firm has built and operates a 
large number of manufacturing and processing plants to supply the 
Fred Meyer stores with food and other commodities packaged under 
the firm's own brand names. 

Mr. Meyer was the active head and guiding force of the firm for 
nearly forty years before stepping up to board chairman. But even 
in his seventies, he still takes an active interest in long-range planning 
and the development of new methods and innovations. 

Mr. Meyer is an unabashed entrepreneur. He is a largely self- 
educated man, who at one sitting can discuss the most modern market- 
ing techniques, economics, the shaded and obscure meanings of most 
facets of philosophy, and almost everything in between. 

March, i960 



CHAPTER 14 

Communicating 



The process of communicating is as old as man himself, and yet, because 
of the great interest in the subject today, one might think that it was 
some startling new idea. Communicating and various techniques of 
communication are the subject of innumerable magazine articles, research 
projects, theses, and books. Is it logical to expend all this time, effort, 
and money on something that everyone does almost from the moment 
he is born? Don't we know how to communicate? 

These questions are easy to answer. We really don't know how to 
communicate, and not only is it logical to devote time and effort to the 
study of communicating, but it is absolutely necessary. 

Perhaps my answers seem a bit dogmatic, but let us consider them for a 
moment. I said that we are all faced with the problem of communicating 
almost from the moment of birth. And so we are. But the needs of a 
baby are quite simple. All the infant wants is to be fed or to have its 
diaper changed or, perhaps, to be cuddled or loved. It communicates 
its wants simply by crying. The parents do not know exactly why the 
infant is crying, so they usually do all three things— hold it, feed it, and 
change the diaper. In most cases they do what the baby wanted and 

337 



338 MANAGING PEOPLE 

probably something it hadn't thought of. At any rate, the message has 
been successfully communicated. And not so much because of the com- 
municator's skill, but rather because of the desire of the listener to 
comply. 

On the other hand, what if the infant continues to cry? It may be sick. 
Or it may just want more of the same treatment. The parents do not 
know. If the crying continues for an extended period, they become 
concerned, then frustrated, and finally, in a worried frenzy, call a doctor. 

From this example we can conclude that simple messages can be com- 
municated simply. More complex messages, however, cannot be communi- 
cated simply, even if the intended receivers want desperately to under- 
stand. 

As managers, living in a complicated civilization and in charge of 
complex and involved operations, few of our messages are likely to be as 
simple as those of an infant. Furthermore, our audience is rarely as 
keen or as eager to interpret our communications as is a typical parent. 
Our problems of communicating are therefore increased many, manv 
times. We must communicate very complex thoughts to an audience 
whose attitudes may range from eager willingness to receive our messages 
through indifference to outright belligerence and whose intelligence mav 
be the same as, considerably less than, or far above our own. 

There are other factors which tend to thwart us in getting our message 
across, such as the backgrounds of our audience and their psychological 
and temperamental dispositions. I don't really know all the factors -^diich 
cause the communication process to succeed or to fail. Nor do I know 
why or how these factors affect the process. The trouble is that no one 
really knows many of the answers. That is why I said earlier that we 
don't know how to communicate. 

The reason that we must know how to communicate is readily ap- 
parent. A manager, and particularly a top manager, must get most of 
his work done through others, perhaps as much as 98 per cent of it. 
He must therefore communicate to others what he wants them to do. 

I am not writing this chapter because I feel that I know all there is 
to know about communicating. Far from it. I am painfully a^vare of my 
own limitations. I do hope, however, that I have a few ideas which may 
prove to be of value to others in coping with the perplexing and ever- 
present problem of communicating. 

Communicating Defined. Let us first try to establish a definition of com- 
municating. Here is what we find in Webster's Dictionary: 

Communication: Intercourse by words, letters, or messages; interchange of 
thoughts or opinions. 

Communicate: To hold or afford communication; to converse; join: as. rooms 
that communicate. 



COMMUNICATING 



339 



I could, of course, cite many other definitions for "communicating" or 
"communication." The term has been defined in many ways by those 
who have written or have done research work on the subject. Basically, 
however, all the definitions I have uncovered are in close agreement. 
Here is my definition of the term. It is in effect a composite of those 
that I have seen: 

Communicating: The act of making one's ideas and opinions known 
to another. 

Communicating has been described as an art and a science and also as a 
process. I subscribe to both views— and to neither. Obviously, good com- 
municating is an art in the truest sense. At the same time there is a 
measure of science involved. But in my opinion, the phrase "art and 
science" doesn't convey the true message. "Process" comes closer because 
it emphasizes the continuing nature of communicating. I chose the word 
"act," however, because it indicates the dynamic nature of communi- 
cating. I feel very strongly that communication must be dynamic if it is 
to be effective. 

Two words in the dictionary definitions seem to have particular sig- 
nificance. They are "interchange" and "join." Perhaps these words pro- 
vide two more keys to effective communicating. When we communicate 
with another person or group of persons there must be an interchange. 
In some way we must transfer an idea from our own mind to other 
minds. This can be accomplished only by bridging the gap between their 
minds and our own. Physically, this may be a very short distance, but 
building a bridge to join minds is a difficult job indeed. 

METHODS OF COMMUNICATING 

In general, it can be said that there are only two forms of communi- 
cation, oral and written. I am using both terms in a very broad sense 
when I say this. Under the heading of oral communication I include face- 
to-face discussions between two individuals, conferences, meetings, tele- 
phone conversations, and formal speeches presented in person or through 
the medium of public address systems, radio, or television. The term 
"written" is intended to include all written and pictorial communication. 

The bulk of our communicating is, of course, accomplished with 
words. But we should not overlook the use of diagrams, pictures, graphs, 
and the like. It has been said that one picture is worth a thousand words. 
This is probably an overstatement in some cases, but there is no denying 
the value of illustrations as a supplement to the written word. As training 
aids, for example, the worth of slides, motion pictures, and various audio- 
visual techniques have been proved many times. 

Even though pictures are often useful, it is a mistake to place too much 



340 MANAGING PEOPLE 

reliance on them. Unfortunately, it is just as easy to convey the wrong 
meaning with a picture as it is with words. The point is that there is no 
proven way of getting any message across, nor is there necessarily one best 
way. 

The most important thing in communicating is not the form used, 
but rather that the communicator should have a clear idea of what he 
wants to communicate. No amount of skill in speaking or writing can 
substitute for clear thinking. To be sure, the ability to write and speak 
well is important in communicating, but these skills do not enter the 
picture until the thinking process has been completed. ^Vhen the idea 
has been clarified in the communicator's mind, he can then build the 
vehicle to transfer the thought to other minds. 

Oral Communication 

Most of us, I am sure, feel that we can get our ideas across more 
easily and accurately in speech than in writing. This is quite natural. 
When we write something, we must rely on words to convey our thoughts. 
When speaking, on the other hand, the tone of the voice, gestures, inflec- 
tions, and pauses, in addition to the words themselves, convey meaning. 
How we say something can be just as important as what we say. 

Thoughts can be conveyed most clearly and accurately in face-to-face 
talks. Since this is the form of communicating we all use most frequentlv. 
we might assume that we would have no problems if it were possible to 
do all our necessary communicating in this way. Misunderstandings can 
still result, however, in face-to-face communicating. 

We communicate orally much more frequently than in writing. For 
this reason, managers at all levels must train themselves or be trained 
to speak well. Apparently the ability to communicate is to some extent 
a natural talent or gift, but anyone can develop a degree of skill through 
training and practice. Far too many knowledgeable people are hampered 
by an inability to speak well. They have things to say. and they know 
what they want to say, but for some reason they are unable to speak up. 
even in small, informal meetings. They stammer and mumble so that 
no one understands what they are trying to say. This is indeed un- 
fortunate. These people should be given training in public speaking and 
shown that because of their knowledge they should not feel self-conscious 
when presenting their views to a group. 

Written Communication 

Writing is much more difficult to master than speaking. But it is a skill 
that must be developed by everyone in a managerial capacity. The 
higher one goes in an organization, the more one must rely on written 
communication. Writing is far more demanding than speaking. As I have 



COMMUNICATING 



341 



already mentioned, nonverbal factors such as gestures, expressions, and 
the tone of the voice help us to convey meaning when we are talking. 
In addition, the listener often has the opportunity to ask questions if he 
is not sure that he understands. The idea can then be repeated in different 
words. A written communication does not afford the receiver the same 
opportunity. The writer cannot depend on gestures or inflections, nor 
can he reword what has been written in order to clear up a misunder- 
standing. Care must be taken when writing even a simple message to 
avoid misinterpretation. 

The following anecdote, which I came across in the Reader's Digest^ 
some time ago, illustrates this fact most vividly: 

A corporation president sent this note to the Personnel Office: "I would like 
to know what procedure we follow in hiring people at our X plant." 

This memo set off a historic flap. Subordinate managers, unsure of what he 
had in mind and unwilling to ask, instituted a complete review of the company's 
personnel policies. More than 300 hours of consultation were held at various 
levels. Scores of reports were written. Every aspect of the subject was explored. 

Finally, after weeks of work, a quarter-inch-thick report was delivered to the 
president. It gave full details of all the aptitude and intelligence tests that 
were used, all the sources of manpower that were tapped, what percentage of 
applicants were able to make the grade, the cost of the hiring program, and all 
the reasons anyone could think of to explain why this was a fine system. 

The boss took one look at it and almost strangled. 'All I wanted to know," he 
said, "was where I should send a neighbor's young son who is interested in a 
summer job. It doesn't matter now— he's gone back to college." 

Writing is also more demanding than speaking because it requires 
strict adherence to standards of grammar. Close attention must be paid 
to material organization, sentence structure, and punctuation. In normal 
conversation, and to a marked degree even when making formal speeches, 
we rarely adhere to rules of grammar. More often than not, when speak- 
ing, we do not use complete sentences. And when speaking, we con- 
tinually repeat what we have said. 

The next time you take part in an informal conversation, listen 
closely to yourself and the other fellow. Notice how frequently you say 
something, pause, and then repeat the same thought in slightly different 
words. Notice the incomplete sentences. There is a good chance that both 
of you will succeed in communicating your thoughts and opinions, but 
what would the conversation look like in writing? 

Because writing demands close attention to rules of grammar and be- 
cause it requires you to organize your thoughts, it has a great deal of 
disciplinary valtie. Although this may sound strange, writing is an ex- 
cellent means of improving speaking effectiveness. 

^ September, 1959, p. 234. 



342 MANAGING PEOPLE 

Some time ago, while in Europe, I noticed that most of the road signs 
there were in picture form. A picture of children, for example, indicated 
a school ahead; two railroad ties with a rail across meant a railroad 
crossing; and so on. It is true that these devices are more necessary in 
Europe where many different languages are spoken in a geographic area 
smaller than our country, but even so, I believe it would be to our ad- 
vantage to make more use of pictures on our road signs. 

The same principle applies to many problems of communicating in 
industry. In my firm, as in many others, we have tried to standardize 
many of our operating procedures through the use of instruction manuals. 
We are, of course, constantly trying to improve our operation. And when 
one division develops an improved way of performing an operation, we 
want the information passed along to other parts of the company that 
could also utilize the improvements. This is more easily said than done, 
but we have improved tremendously in this respect through the increased 
use of drawings, charts, photographs, and other pictorial devices in our 
instruction manuals. 

Progress has been made in the field of safety and accident prevention 
through the use of cartoons, photographs, and the like. This approach 
can and should be carried into many other fields. We have all seen 
many cases where a message could have been conveyed through the use of 
a picture. Care needs to be taken that the illustrations are acceptable. But 
often a message that is actually critical in nature can be put across 
without antagonism with a cartoon in a humorous vein. 

WHAT MUST MANAGERS COMMUNICATE? 

As managers, we are faced with the problem of communicating many 
kinds of information, to many groups of people. In our o^vn organization 
we must communicate to other members of management, hourly em- 
ployees (and usually the union representatives), and stockholders. Out- 
side of the organization we must communicate with the public at large 
and with special segments of the public. 

Although communicating with the public, particularly for a retail 
organization, is of utmost importance, I believe that the top manager's 
most important concern is with internal communication. The problem 
of communicating with hourly employees seems to be particularly diffi- 
cult. Certainly, this is the area where top management has done the 
poorest job. 

I have heard many top managers complain that their companies 
utilize house organs and news letters and place communications on 
bulletin boards, but still have little success in motivating or influencing 
their employees. In most cases there is a definite lack of personal, face-to- 



COMMUNICATING 343 

face communication, but failure to communicate is caused more by an 
unawareness of what should be communicated than by the approaches 
or mediums used. 

Employee communications should not be designed to substitute for 
the daily newspaper or the magazines. They should not moralize, deal 
in social items, or be designed to entertain. Rather they should be de- 
signed to give information about the firm that employees cannot get 
elsewhere. Employee publications should contain the following: 

1. Data on the firm's objectives and plans 

2. Who are the men in the management group 

3. How products are made or where they are obtained 

4. How the worker may aid the firm in meeting competition 

5. Factors that may cause layoffs 

In other words, most employees would like to know the facts, just as 
management does, so that they too can make plans. 

Let's take a typical example. Many firms are sorely pressed by foreign 
competition. Foreign firms, largely because of lower labor costs, are 
often able to sell similar items for less than American firms. Employees 
know this. They see foreign cars on the road, and items from practically 
every foreign country are on sale in neighborhood stores. News stories 
and editorials appear almost daily in our newspapers citing the inroads 
foreign competitors have made in the American market. The employees 
may even be vaguely aware of the fact that their company is affected by 
foreign competition. It is highly unlikely, however, that newspaper 
stories give them any idea of the extent to which their firm has been 
affected. This information should be made available through employee 
publications. 

Some firms have attacked this problem intelligently and progressively 
and have met with gratifying success. 

All too often companies do not attempt to communicate economic 
factors, such as the effect of foreign competition, until they begin contract 
negotiations. When a strike is threatened, employees usually look upon 
these communications as simply a means of trying to scare them into 
accepting the company's offer. If, however, the company has made an 
honest effort in the past to communicate similar information, the em- 
ployees and their union representatives are more apt to accept the com- 
munication in good faith. 

I have often heard top managers say that they just don't know how to 
communicate with their employees. They say that their employees don't 
understand such things as sales trends, the effect of governmental regula- 
tions and taxation, and the need for profits. These managers may be 
right. The thing that amazes me, however, is their failure to realize 



344 MANAGING PEOPLE 

that it is their responsibility to inform their employees on these matters. 
It is their job to give their employees the facts in language that they can 
understand. This does not mean that the manager has to "write down" 
to his employees. He should merely avoid the use of technical terms and 
write in everyday language. He should observe the golden rule and write 
as he would like to be written to. 

Communicating within the management group doesn't seem to present 
the same difficulty. Even so, there is room for a great deal of improvement. 
In this area, too, every effort should be made to disseminate facts. 

When organization changes are to be made, when there are going to be 
mergers or acquisitions, or when new procedures are to be adopted, every 
effort should be made to tell every individual how he will be affected. 
Some years ago we decided to adopt psychological-testing procedures. 
News of our intent leaked out, and though unnecessary, a great deal of 
misunderstanding and apprehension was felt by many in our organi- 
zation. We overcame this situation by communicating to our employees 
exactly how the new procedures would affect them. We explained why 
we were using the tests, what results we were expecting from their use, 
how the tests would be used, and how they might profit because of the 
tests. Every individual in the organization was told these facts personally 
by his immediate superior. After thorough indoctrination, we proceeded 
with the tests without disrupting efficiency or lowering morale. This, I 
feel, is a good example of how effective communicating can overcome 
possible problems. 

On the other side of the business are the stockholders. Thev, too. 
must be given facts. A surprising number of companies are doing a very 
good job in the field of stockholder communication. In the past, annual 
reports were the dullest and the most unimaginative pieces of literature 
on the face of the earth. They contained little more than a few pages of 
figures and a few brief notes explaining the financial statements. More 
and more, however, companies have come to realize the value of annual 
reports as a means of communication. This seems to be particularly true 
in the case of companies that produce consumer goods. They use the 
annual report as a means of advertising their products and make a 
determined effort to make the reports interesting as well as informative. 
With ever-increasing numbers of people holding stock in American in- 
dustry, the area of stockholder communication is more and more impor- 
tant to top management. 

Internal Communication 

I would like to discuss the problem of communicating internallv a little 
further. Until recent years, retailing seemed to have better communica- 
tion than industry because management had closer and more frequent 



COMMUNICATING 345 

contact with the employees. As retailing continues to grow into ever 
larger units, however, and spreads rapidly over more and more localities, 
good communication is more difficult to maintain. So, as in industry, 
we are constantly seeking ways and means of bettering communication. 
Through interchange of experiences, retailing and industry may mutually 
work out better communication to the benefit of both. Both are becoming 
larger corporate bodies, and as a result, problems of communication 
become more and more difficult. More and more information must be 
disseminated, and the industrial or retail manager who misses this, misses 
the great compelling need of our times. 

Downward Communication. As I have already mentioned, I believe that 
communicating internally is the major concern of most top managers. We 
make every effort to supply our management group with all the impor- 
tant and proper operating facts and figures. We also try to pass on 
information about the attitudes, desires, hopes, and even dreams of top 
management to every member of management. Even so, I feel that we 
could do a better job. We have had our share of dissension, misunder- 
standing, and strife. This is no different from any firm, I am sure. But 
it can and must be eliminated or reduced to an absolute minimum 
through better communication. 

Unions have established elaborate and quite efficient research organiza- 
tions that obtain financial data on companies. Some of these data are 
then passed on to union members. The union naturally uses the informa- 
tion that proves its contentions and presents it in the way that is most 
beneficial to the union. Companies must therefore make every effort to 
provide their employees with all the facts. If a good job is done, a feeling 
of greater unity among all our groups of managers and employees can 
be created. This we must do, if private enterprise is to survive. 

There are often groups in a firm's operation that feel "isolated." They 
feel they are not members of management or part of the working group, 
yet they are responsible to both. This may be the foreman in industry, 
the section head in a retailing enterprise, or the manager of a small 
isolated division in highly specialized or technical production. Often 
these special groups do not receive the type of information that they need. 
The wants of these groups must be recognized by top management, and 
every effort made to supply the kind and the amount of information 
that they need. 

Upward Communication. Although we are not always successful in com- 
municating our exact message downward through the organization, we 
can at least initiate communications to our subordinates. Getting com- 
munications to move upward through an organization, however, is a 
different matter. 

I am frank to admit that we have not solved this problem. We have 



346 MANAGING PEOPLE 

the usual suggestion boxes and have employed other means, but we 
still do not get the kind and amount of data required to move upward 
through the organization. The real problem seems to be psychological. 
Few people seem to hesitate to discuss their opinions, attitudes, and 
gripes with people on the same organization level, but even though much 
of this information should be taken upward in the organization, there is a 
natural reluctance to approach one's superior. This is particularly true 
of the top manager. When he was a salesman, sales manager, or even 
vice president in charge of sales, he was still "one of the boys." He had 
peers within the organization and had access to the grapevine. But when 
a man becomes the president of an organization he finds that his associates 
treat him differently. For some reason, and in some way, he is shut off 
from much vital information. 

The top manager, of course, receives formal information and reports 
on the operations of his business, but such reports do not give him a 
real "feel" of conditions within the company. Communications must be 
two-way if they are to be effective. Subordinates may feel that the presi- 
dent does not want to be bothered with details, or they may feel that 
if they take up too much with the boss, others will feel that thev are 
"apple polishing." These and other factors tend to stifle upward com- 
munication to the president. 

There is, of course, danger that some skilled talker may discover that 
he can get the president's ear and sell him on some function or on himself 
or sell some other person or function down. The president must be 
skilled in getting all the facts. If he doesn't, some factors may get more 
attention than they deserve while others more in need of the top 
manager's attention may be neglected because those in charge either are 
not skilled in communicating the problems involved or fear to do so 
for various reasons. There is always the danger that the talkers mav get 
all the attention while others get little or none. 

Upward communications must be guided and controlled. There ^sill be 
occasions when the president does not have time to talk to a subordinate 
for one reason or another, but these occasions can be handled ^\'ith tact 
and diplomacy. Upward communications should be as free as do^vmvard. 
The top manager should encourage his subordinates to tell him all the 
facts and not just those things that they fancy he wants to hear. If the 
top man gets the reputation for being willing to listen, and if his judg- 
ments are fair, then he is apt to get the kind of information that he 
wants from his subordinates. A favorable atmosphere and environment 
must be created to encourage upward communications. And this must 
start with the top man in the organization. If he is not willing to listen 
to his subordinates, they, in turn, are not likely to listen to theirs. On 



COMMUNICATING 347 

the other hand, if the top man conveys the feeling to his subordinates that 
the truth is desired and welcomed, they are more apt to adopt this same 
attitude with their subordinates. 

There is no way of standardizing the upward flow of information. 
The president must have a ready ear and eye when making contacts 
with others in the organization. He must train himself to know where, 
how, and when to listen. 

Taming the Grapevine. Like it or not, every organization has its "grape- 
vine." It makes no difference how well the formal channels of com- 
munication are established; in every organization there is a network of 
informal communication channels. Naturally, the grapevine is not neces- 
sarily accurate or reliable, but it does communicate a great deal of infor- 
mation—and very quickly, too. 

In order to prove how unreliable the grapevine is, we decided to 
conduct a little experiment. We made up a "story" and gave it to one 
of our top executives. He was given orders to pass the story on to only 
one other person. He in turn was to pass the story on to one other person, 
and so on, until fifteen people had been told the story. The fifteenth 
person then told the story to the first person in the line. The story, as 
he related it, was so different from the way it was first stated that it was 
almost unrecognizable. This experiment was nothing new, of course. 
Many people have played this game at parties. It did, however, prove 
to our executive group just how unreliable the grapevine can be. 

The grapevine is constantly operating in all businesses. We cannot 
stop people from talking, and we should not try. But it behooves 
management to try to find out what kind of information is being spread 
by the grapevine and, if it is erroneous or harmful, to take steps to 
counteract the effect of the grapevine by communicating factual informa- 
tion. 

In every organization will be found people who just plain like to talk. 
Usually the "talkers" are not antagonistic to the organization, but if 
they are ill-advised— and more often than not they are— they can cause 
a great deal of harm. It is just human nature to want to be "in the know." 
People like to speculate on the outcome of events; it is like a game or 
a race. This in itself is not bad, but managers should not dismiss the 
rumors carried by the grapevine as merely idle chatter. If the rumor is 
erroneous, steps should be taken to correct it. 

Things that are said or done by management people make up much of 
the everyday conversation of the workers. Therefore all levels of man- 
agement should do everything in their power to answer the questions of 
their subordinates. If a supervisor is unable to give a satisfactory answer 
to a question or must say "I don't know," the rumor factory has am- 



348 MANAGING PEOPLE 

munition with which to work. Often, information that is being held con- 
fidential can be given out in a form that will dispel rumor or doubt and 
at the same time maintain the needed confidence. 

The grapevine cannot be eliminated, but if it is provided with factual 
information, it can actually be made to work to the benefit of everyone 
in the organization. 

Communicating with the Public 

Although communicating with the public is important, I am not going 
to spend much time on this subject because this problem is usually 
handled by advertising and public relations experts and because there are 
other chapters in this Handbook devoted to external-relations activities. 
I would, however, like to mention the value of the employee as a good- 
will ambassador of the company. 

It has been said that the best advertisement is a satisfied customer. 
Perhaps the worst sort of advertisement is a dissatisfied employee. The 
employee is a part of many segments of the public with which business 
must communicate. If an employee is "sold" on his company, he can do 
a great deal to create a favorable attitude toward the company among his 
friends and relatives, in his neighborhood, in his church group, and in 
the clubs in which he is active. In order to be a positive force in creating 
good will, however, he must be armed with facts so that he can defend 
the company's policies and attitudes if questions arise. As head of a retail 
enterprise in a relatively confined geographical area, this may be of 
more importance to me than to the chief executive of a manufacturing 
concern, but I believe that it is important to all managements. 

I would also like to comment briefly on the problem of fostering up- 
ward communication from those outside the company. AVhen the business 
was small, customers came and told me what they liked or did not like 
about our goods, our operations, our personnel, and other factors. As the 
company has grown, however, this contact has become more and more 
infrequent. The younger generation particularly seems to look at a 
company as some kind of fictional entity rather than as an organization 
made up of individuals much like themselves. Yet we have to kno^v ^vhat 
our customers think of our organization if we are to improve it and 
thereby increase the size and profitability of our operations. 

Some time ago we decided to place forms in all our stores inviting 
customer comments. The results were not good. Very few were filled in 
except for some very serious complaints. We felt that we could improve 
our operations, increase our sales, and gain more customers if -we could 
but find out what our customers wanted us to do. In an attempt to induce 
more use of the forms we had provided, we installed desks at various loca- 
tions in all our stores. We felt that these desks could be used by the cus- 



COMMUNICATING - 349 

toniers to rearrange their packages, and by providing a pen and forms 
to be filled out at the desk, we felt that we would obtain more response 
from our customers. There is also a box provided at each desk for receiv- 
ing the filled-in questionnaires, or since they are printed on post cards 
for which the postage has been paid, the customer can mail them to us. 
The number of responses received has steadily increased, and we have 
obtained much more information. The name and address of the customer 
are asked for on the form, and if this portion of the card is filled in, a 
high-level member of the organization writes a personal letter to the 
customer thanking him for his interest and suggestion and encouraging 
him to communicate any other likes or dislikes he may have about our 
operation. 



CONCLUSION 

The ability to communicate effectively is a prime requisite for every 
manager. No organization can be successful unless every member of the 
organization pulls in the same direction. And in order to get people to 
pull in the direction that you want them to, they must be given informa- 
tion. They have to know what you want them to do, and they must 
know how to do it. Furthermore, they have to be made to see why they 
should do it and of what advantage it is to them personally. 

Every employee in the organization must be given an understanding 
of the organization's goals, its objectives, and its policies. It is generally 
agreed that there is a definite relationship between communication and 
productivity. Managers must therefore learn to communicate effectively 
so that they can produce the results that are required of them. 

There has always been a definite need for good communication, but 
this is even more true today than it ever has been in the past. Increase in 
company size, decentralization, specialization, technical progress, and 
other factors have increased the need for more and better communication. 

The effectiveness of any company depends on the efforts of each in- 
dividual in the company. And most people will do a good job if they are 
made to feel that they are an important part of the organization. This 
feeling can be fostered only through good communication. It is the 
responsibility of every manager to create such a feeling in every member 
of his organization. 




Herman W. Steinkraus 

CHAIRMAN OF THE BOARD 
BRIDGEPORT BRASS COMPANY 
BRIDGEPORT, CONNECTICUT 



Herman W. Steinkraus is a native of Cleveland, Ohio, where he at- 
tended the local public schools and later graduated from Western 
Reserve University. 

He started his own metal and chemical business in Cleveland in 
1924, and within four years Bridgeport Brass bought him out and 
made him its general sales manager. He became president of the com- 
pany in ic)42 and chairman of the board four years later. He held 
these positions simultaneously and continually to Apr. 28, ip^S, when 
he relinquished the presidency. He remains board chairman. 

Mr. Steinkraus has served on a number of national committees, such 
as President Truman's Labor-Management Committee in ip-fy, and as 
advisor to the U.S. Conciliation Service in ip-f6. He -was chairnmn of 
the Industrial Program Seiuices Cominittee of the Xational YMCA 
from 1P46 to 1949. 

He was a tnember of the board of directors of the Xational Asso- 
ciation of Manufacturers and a former chairman of the XAM Indus- 
trial Health and Safety Committee. He is a trustee of the Xational 
Industrial Conference Board. 

He became a director of the U.S. Chamber of Commerce in 1944, 
representing Election District i, and vice president for the Xorth- 
eastern Division in i()4'] and was elected President of the U.S. Chamber 
of Commerce for ip4C)-ip^o. He has served as chairjnan of a number 
of its important committees and has been a member of the governing 
board of Nation's Business magazine. 

Mr. Steinkraus is a trustee of the University of Bridgeport and of 
Ithaca College and a member of the executive and finance commit- 
tees of the Twentieth Century Fund. He is a member of the National 
Citizens Committee of United Red Feather Campaigns of Afnerica and 
a founding member of the Independent Veterans Committee for the 
Hoover Report. 



350 



Mr. Steinkraus holds two honorary LL.D. degrees, one from Boston 
University presented to him in March, ip^o, and the other from his 
alma mater, Western Reserve University, in June, 1950. A third 
honorary degree, Doctor of Letters, was conferred on him by the Uni- 
versity of Miami in February, ip^8. 

He also holds the national Man of the Year award given annually 
by the National Conference of Christians and Jews. 

Mr. Steinkraus was one of a small group selected to join a commis- 
sion headed by the late General William "Wild Bill'' Donovan to 
study the effects of the communist redefection program upon this coun- 
try. In this connection, he has made two trips to Germany and Vienna 
to study the refugee situation. 

He was elected president of the American Association for the United 
Nations in November, ip^8. 

Mr. Steinkraus is a director or trustee of a number of companies: 
Carrier Corporation, Syracuse, New York; American Manufacturers 
Mutual Insurance Company of Chicago, Illinois; Bridgeport Hydraulic 
Company, Bridgeport, Connecticut; Bridgeport Gas Company, Bridge- 
port, Connecticut; the Connecticut National Bank of Bridgeport, Con- 
necticut; and the People's Savings Bank, Bridgeport, Connecticut. 

March, i960 



CHAPTER 15 

Motivating 



The biggest single factor in the success of any organization is getting the 
people employed in the enterprise united in the purpose of making it a 
success. That is why every company and its management must motivate 
the employees to work harmoniously for the attainment of established 
goals. 

The subject of "motivating" is a very broad one and can easily impinge 
upon the subject matter of every other chapter in this Handbook. Sound 
motivation is a powerful tool for getting things done. Yet there is no 
simple rule by which a person can learn how to use this tool. 

Complete books have been written on the subject of motivating. Psy- 

351 



552 MANAGING PEOPLE 

chologists and psychiatrists have delved into the mental processes in- 
volved. This chapter, however, is written on the basis of practical ex- 
perience, with no attempt to approach the subject scientifically. 



NONFINANCIAL INCENTIVES 

There is an important group of motivating forces that can be con- 
sidered under the broad heading of "nonfinancial incentives." The man- 
agement of a company cannot afford to overlook these forces which, in- 
tangible though they may be, have much to do with the spirit of an 
organization and its power of accomplishment. 

The results of a study made by a committee headed by General John- 
son of Johnson ^ Johnson showed that the following are important 
requisites of a successful organization: 

1. Every member of the organization must be proud of his work. 

2. Everyone must be proud of the reputation of his company. 

3. All must have a sense of belonging. 

Motivating forces of this kind depend upon the type of leadership given 
by the top managers of an enterprise. 

Employees very quickly sense the true character of their leaders, and 
they want men and women whom they can respect and even admire. They 
are very much interested in the community life and home life of their 
leaders. The character and habits of the small group of top managers to 
whom the organization looks for leadership have much to do with their 
ability to motivate their people. 

This statement will no doubt be challenged by some managers, espe- 
cially if they think it too harsh. But examples are so numerous that all 
you have to do is think of the heads of business in your community and 
judge their organizations by what you know about them. It is amazing 
how much a prominent man's reputation is based upon his attitude 
toward women, toward golf, toward drink, toward community activities, 
and toward his responsibility as a citizen and as a family man. Employees 
judge their companies and their managements on more than merely their 
actions during working hours. 

The interests of the individual are not limited to the things which 
affect him directly. Most people like to belong to a winning team. People 
will work hard for the success of the team or group to which they belong. 
The task of management is to encourage in them an emotional feeling 
of belonging. 

People will often work hard for a lofty ideal. If the ideal really exists 
and is properly presented, strong motivation results. Insincere attempts to 
use this motivating force, however, usually backfire. 

No two people respond to proposals the same way. What may strongly 



MOTIVATING 353 

appeal to one may be vigorously rejected by another. The more we study 
human relations, the more we recognize how much we have to learn about 
what motivates people. 

Not only are people different, but too often business management has 
the narrow view that people connected with the business are motivated 
strictly by economic or logical reasons. Yet it is a well-known fact that 
more decisions are made by people on the basis of emotion than on the 
basis either of economics or of reasoning. 

Groups of people will often be inspired by causes such as the mundane 
cause of making this year's profits higher than last year's, the competitive 
cause of beating out a rival, or the more lofty cause of providing higher 
quality and service better to meet the needs of their customers or even 
their country. The skillful manager recognizes these things and tries to 
present the reasons for working together on a project in terms which will 
identify the success of the project with the interests of the individual and 
the group. 

It should be pointed out that many a program has been developed 
with the idea that it would motivate a certain group to take a certain 
course of action, but in actual fact has had just the opposite effect. This 
occurs regularly in sales and advertising programs, union negotiations, 
and so forth. The reason for this is usually that the planners have been 
too wrapped up in what they wanted to accomplish for themselves or for 
their organization. They failed to remember that the program must ap- 
peal to each individual they are trying to reach as a worthy objective for 
him. 

Motivation is the driving power which carries out the plans of the 
management through the enthusiasm of the group. Managers must there- 
fore study how to motivate every employee or group of employees in a 
way that fits their particular status or attitude, so that they will do their 
part of the over-all task with enthusiasm and vigor. 



FINANCIAL INCENTIVES 

Financial-incentive plans of many kinds have long been used to moti- 
vate groups and individuals to work toward an objective. A financial- 
incentive plan can be an effective means of stimulating people to exert 
extra effort. It must, however, be soundly developed. Following is a short 
check list for determining the basic soundness of a financial-incentive 
plan: 

1. It must remain well within the framework of keeping the business 
financially healthy. 

2. It must bear a reasonable relationship to the company's long-range 
welfare and success in both good and bad times. 



QK^ MANAGING PEOPLE 

3. It should be developed to suit the company's specific needs, not 
copied bodily from another company. 

4. Only those persons who can make specific contributions toward ac- 
complishing the desired results should be included in the plan. 

5. It should be simple, easily understood, and consistently applied. 

6. It should be carefully prepared so that radical changes are not re- 
quired once it has been put into operation. 

Financial Incentives for Salaried Personnel 

Financial incentives for salaried personnel take many forms. The first 
and most obvious is, of course, a good salary. Some companies pay salaries 
that are higher than the average because they feel that by so doing they 
can obtain the best people. They also feel that a higher-than-average 
salary will motivate people to work harder. However, people usuallv come 
to look upon their salary as compensation due them for fulfilling the re- 
quirements of the job, and therefore it provides little or no inducement 
to put forth extra effort. Further, because of our graduated income tax, 
a substantial salary loses much of its effectiveness as a means of attracting 
or rewarding top-level managers. For these reasons, other kinds of finan- 
cial incentives for salaried personnel-particularly top-level managers- 
have been developed. 

The stock-option plan is an approach that became extremelv popular 
during the 1950s. Actually, stock-option plans have been in effect in this 
country for some time. One study estimates, for example, that during 
1928-1938 some 25 to 35 per cent of the corporations listed on the New 
York and American Stock Exchanges adopted an employee stock-option 
plan at one time or another. Plans of this type were not widely adopted, 
however, until the 1950 tax law established that profits from the sale of 
stock could be considered as capital gains. With the passage of the 1950 
tax law, their number grew at an astonishing rate. 

Originally, stock-option plans were largely restricted to onlv the top 
level of managers, but as they have increased in number, their scope has 
broadened to include lower-echelon members of management as well. 

Bonus systems are a widely used form of financial incentive. There are 
a number of bases for determining bonus payments. Bonuses paid to 
top-level managers, for example, are usually based on the companv's net 
profits before taxes. Sales personnel are often paid a bonus determined 
by the volume of sales obtained beyond an established quota. In the case 
of senior supervisors, bonuses are usually based upon the performance 
of the particular department or division under the supervisor's direction. 
Bonus plans for foremen are usually based on a number of factors such 
as downtime, spoilage, productivity, and the like. 



MOTIVATING 355 

Another plan for motivating good performance, which is essentially 
financial in nature, is a pension system. It is evident that more and more 
people are motivated to select and stay with a company because of the 
company's pension plan. This can be both good and bad. It is good, of 
course, because provision is made for a man's income after retirement. 
But it is bad if an individual stays in a position simply for the pension 
he will one day receive even though he could command a better position 
elsewhere. - 

Financial Incentives for Hourly Workers 

There are various forms of financial incentives designed to motivate 
hourly workers. Wage-incentive plans, which provide extra pay for output 
in excess of established standards, are widely used. This is an extremely 
important incentive where a sound program of industrial engineering 
exists and where sound standards can be set. If plans of this type are not 
properly established and maintained, however, they can become burden- 
some and costly to the company. 

Usually there are no stock options for hourly workers, but an increas- 
ing number of companies are making it possible for workers to buy stock 
in their own companies on a payroll-deduction plan. Many companies 
have such a plan on record with the New York Stock Exchange. In most 
cases they do not urge employees to buy stock in the company, but 
inform them through booklets just how to go about purchasing stock 
via payroll deductions if they are interested. They say that employees who 
buy stock in their company show a greater interest in their work and 
in the affairs of the company as a whole. 

Of course, pension plans for hourly workers are a very important part 
of most union contracts, and they can be considered as a force that 
motivates employees to do good work and to remain with the company. 

THE ADRIAN STORY 

One of my most dramatic experiences in motivating people to work 
toward a common goal occurred in 1954. We leased a United States Air 
Force plant in Adrian, Michigan, that had been built to make aluminum 
forgings and extrusions for military aircraft during World War II. It had 
a poor postwar performance. Five companies operated it at various times, 
each without success. Several strikes of long duration had created bitter- 
ness in the community. The plant stood idle much of the time and 
finally became known as the "white elephant." It was a bleak example 
of failure on a big scale, and no one in the community was proud of it. 

This was a special-purpose plant which was designed and built solely 



356 MANAGING PEOPLE 

to sustain the defense air-frame business. It produced large parts needed 
for manned military aircraft. Consequently, it was one of the earliest 
casualties of the new missile age-but that's a different story. 

We were just beginning to get into the aluminum business, and the 
plant had a lot of fine equipment which we knew how to operate. So we 
decided to take the risk of a long-term lease on the property. Wt felt we 
could motivate the union as well as the citizens of the community to 
cooperate with us in turning this plant into a successful operation. 

The motivation for accomplishing this could not be financial, for the 
union contract which had existed was one under which no company could 
operate successfully because of its high-cost provisions and its many 
crippling restrictions on operations. As for the community, there was no 
financial incentive big enough to encourage the people to share in the 
responsibility of making this plant a success. Yet there had to be a 
motivation strong enough to accomplish what had not been accomplished 
over a period of years. It had to be broad enough so that it would ^\eld 
the officials and members of the community, the union members and their 
leaders, and the management of the company into a team which would 
turn this failure into a success. 

The first requisite was to build the machinery to set this powerful effort 
in motion. Before much progress had been made to accomplish this, ho^\- 
ever, the union leadership threatened to strike the plant unless we as- 
sumed the terms of the existing contract-a contract which had been so 
damaging to the operations of our predecessors they were forced to quit. 

The Approach 

We decided that we had to create an opportunity to explain clearlv 
the reasons for this project in terms of the interests of each of the three 
groups and of each individual in those groups. It ^vas therefore decided 
to invite all employees and their union leaders to a meeting where the 
management would state its problems through its president and the 
union would be invited to state its position through its international 
president. Public officials and leaders of the community were also invited 
to the meeting and offered the opportunity to ask questions of either the 
president of the union or the president of the company, so that the entire 
community would know the facts. 

The motivating forces in this situation were different for each group. 
In the case of the union, the motivating force would have to be recog- 
nized as at least partly financial. In the case of the communitv, the 
motivating force would have to be largely pride in the communitv and 
perhaps long-range benefits from job opportunities for their people and 
taxes for the town. Management, of course, wanted a successful operation 
in the aluminum field, thereby adding to the growth of the company. 



357 

MOTIVATING 

Through the help of the mayor of the city a mass meeting was organ- 
ized. The international president of the union stated that no one would 
be authorized to speak for the union. The responsibility for motivating 
constructive action, therefore, rested upon the president of the company. 

An overflow crowd came to the local armory where the meeting was 
held. The rector of the Episcopal Church had agreed to preside. He an- 
nounced that there would be no one speaking for labor, but that I, as 
president of the company, would speak for management. I could feel the 
pressure of the approaching crisis. The success or failure of the enterprise 
rested largely upon motivating these people to join in a constructive 
program of operation of the plant. 

I directed my first remarks to the officials and members of the com- 
munity. I indicated to them that having the largest plant in their city 
known as a "white elephant" and being known as a failure throughout 
the whole state of Michigan was in effect declaring to all their sons and 
daughters that they could not expect to find work in their own home town 
and would have to seek their careers elsewhere. This was true, because 
with the largest plant in town such a complete failure, no company 
would look with favor upon selecting Adrian as a town in which to ex- 
pand its operations. The white elephant failure spoke too loudly against 
the future growth of the community. 

It was obvious that this approach was a powerful challenge to the 
pride of the community and to the long-range personal interests of the 
fathers and mothers as well as the young people. I could sense that this 
argument was making a deep impression upon them. I felt certain that 
it would motivate them to join in any reasonable and fair program to 
remove this blemish from the town and help to make the operation a 
success. 

About half of the audience of 1,100 consisted of men who had been 
employed at the plant for longer or shorter periods up to twelve years. 
All of them belonged to the United Automobile Workers Union. There 
was evidence that this group was particularly bitter toward previous man- 
agements of the plant and was determined to carry out its bitterness 
against the newcomer by using every obstructive tactic it knew. 

I asked the union members if it made sense for a successful company 
like our own to come to Adrian to take over the operation of a large 
plant and to risk millions of dollars in the hope of making that operation 
successful in the face of the statement of the union leadership that they 
would do everything in their power to make us fail in our attempt. 

I indicated to them that we did not have to come to Adrian since we 
were a successful company without the Adrian operation and that we 
were undertaking a great risk even under favorable circumstances. But 
we were willing to undertake this risk if we had the cooperation of the 



358 MANAGING PEOPLE 

people and the members of the union. Without that, however, we would 
surely fail, as others had failed. 

I painted a picture of what it would mean if the union members, their 
leaders, the town fathers, the citizens, and the management of our com- 
pany decided that together we would tackle this problem and do every- 
thing in our power to make a success of the enterprise. I emphasized that 
seniority in a successful plant is worth something, whereas seniority in a 
failing plant is worthless because there is no employment. 

I stressed the characteristics of sportsmanship and fair play, which are 
inherent characteristics of the American people. I played all the stops I 
could. I tried to show them what success in this venture would bring, 
not only in financial rewards to all three of the major parties, but also 
in bringing prestige to the community and to the union for helping us 
instead of hindering us. 

A question-and-answer period followed, which lasted about an hour. 
Many questions were asked by members of the union, and they were 
answered frankly and fairly without accepting responsibility for past 
failures, but giving assurance of our ability to operate the plant success- 
fully if we could count on their help. 

A Major Break-through 

The first sign of success in creating powerful motives became evident 
when a tall, white-haired Abraham Lincoln type of man came walking 
up the center aisle to the platform and took the microphone. Here is 
approximately what he said: 

At first I wasn't coming to this meeting tonight because I felt nothing could be 
accomplished, but in listening to the radio and reading the local and Detroit 
papers, which were full of stories about our controversy here. I changed my mind. 

I needn't tell you who I am. You know me. I was born in this town seventv- 
five years ago, and I have lived here all my life. I can remember when Adrian 
was just as important to the state of Michigan as Pontiac and Flint. 

However, we didn't seem to care whether industry came to our community or 
not, and today we find ourselves way behind in the creation of opportunities 
for our children and our grandchildren, while Pontiac and Flint have become 
large, important cities in Michigan. 

In 1937, when the CIO was organized, I became the counsel for your union, 
and I have given you advice from that time until now. I have listened to this 
man, and I am sure that the citizens of this community must take a greater 
interest in its future if we are going to be fair to our children. This means Tve 
have to solve the problem of this great white elephant plant, and we must help 
this management do so. 

Now I want to give you union men the best advice I can. At my age I have 
no ax to grind. Forget the disappointments of the past. Put your shoulder to 
the wheel to help this fine company and its management operate this plant 



MOTIVATING 359 

successfully to give you steady employment and a chance for advancement. Help 
wipe out the blot of failure which this plant carries. This can be done only by 
a successful firm coming in and operating it with the full and wholehearted 
support of the community and the union. 

When that meeting was adjourned the union leadership and the manage- 
ment came to a fair written agreement, and all steps for starting the 
operation were taken. 

Results 

All the members of the plant were made charter members of an organ- 
ization promptly formed and called the White Elephant Club. Its purpose 
was to bring the plant to a successful operation, and it was understood 
that the first month the plant operated in the black would be marked by 
a celebration dinner in Detroit at the expense of the company. 

It wasn't long before the governor of the state, the senators and con- 
gressmen, and the local town officials all became honorary members of 
the White Elephant Club. 

A huge celebration was held fourteen months later, attended by the 
governor and many other dignitaries, at which time a huge, white papier- 
mache elephant was painted a rosy pink by the 700 workers in attendance. 

The same powers of motivation with which this effort was started are 
still forceful and showing results. The National Public Relations Asso- 
ciation selected the Adrian story for a special award. Instead of only the 
company accepting this award, we insisted that it must be a three-way 
award and that it should be given jointly to the mayor of Adrian, the 
president of the local union, and the industrial-relations manager of the 
plant as representatives of the three forces that had united to make the 
undertaking a success. 

IMPORTANCE OF THE INDIVIDUAL DECISION 

Some years ago the international union representing our employees 
determined to close down the entire copper and brass industry, including 
the mines, the refineries, and the fabricating plants. Up to that time our 
company had maintained a record, with the help of our employees, of 
not having had a strike or a major work stoppage for over eighty years. 
However, the plan of the international union required a complete stop- 
page of the entire industry in order to show its strength and to obtain 
its goals. 

It was a natural thought for oiu' management to make a plea to our 
employees not to break this long record of continuous employment. Such 
an appeal to their pride seemed a logical thing to do, but we had seen 
other cases where the appeal of management to their employees not to 



360 MANAGING PEOPLE 

Strike had been interpreted by the union as a sign of weakness. "We there- 
fore decided to take a different course of action. ^Ve have a pubHc-address 
system reaching all parts of our plant which we utilized to talk to our 
employees at the peak of the tension. 

We told them it was true that we had a long record of no major work 
stoppage, but that actually they established this record. ^Ve agreed that 
the record could be broken at any time they saw fit to do so. By law they 
had the right to strike, and if they really wanted to strike, there was little 
we could do to stop them. However, we felt they should not permit any 
small group to vote them out on a picket line, but should insist upon 
having a strike vote from all employees. We were willing to provide ballot 
boxes throughout the plant and to set aside a certain time when they 
would be permitted to leave their jobs and cast their vote. ^Ve urged 
them not to permit a small group of hotheaded people to meet at a rump 
session and throw them out of their jobs without their having anything 
to say about it. 

We then raised the question as to just what they would accomplish bv 
a strike, except to be forced into action on a national program of the 
union in which they were not involved. They had no major grievances 
against the company, and while a strike would be expensive for the com- 
pany, it would also be very expensive to them personally. 

As a result of this presentation, as well as talks by our foremen ^vith 
the individual workers urging them to insist upon a secret-ballot vote, the 
employees rejected the efforts of their union leaders and voted against the 
strike. 

After this decision had been reached, the atmosphere in the plant -^vas 
one of relief and happiness because they had faced up to an important 
decision and had come up with the right answer. Their recognition of 
the fact that management was putting the decision into their hands and 
was willing to accept the consequences made them feel that their action 
was a voluntary one, and not one dictated or influenced by management's 
wishes. Had we taken an attitude of fear or one of trying to coax them. 
they might have taken the rather contrary, although quite human, posi- 
tion of voting against their own best interests. 

This incident demonstrates that American workers ^\'ilk ^vhen the 
burden of decision is left in their own hands, respond to their highest 
sentiments as important members of their company. 



CONCLUSION 

As I said earlier, I have not attempted to treat the subject of motivating 
in a scientific manner. Instead, I have presented a few graphic illustra- 
tions of motivation in practice. 



MOTIVATING 



861 



I feel it would be fitting to conclude this chapter with a statement by 
Robert Welch, who, I beheve, has expressed motivation in such a way 
that all who read it will understand the true meaning of the word. 

It is loyalty to the best in human nature, to the ideals of truth and justice and 
compassion and individual integrity which man has slowly and haltingly ac- 
quired over thousands of years. We do not believe that the toil and teaching 
through the ages of the saints and the philosophers, the fighters and the poets, 
the workers and the dreamers, who have created such civilization as we now 
have, are to be cast aside as useless and in vain. We may blindly lose our 
gratitude, our perspective, and our vision for the future during absorption in the 
litde games that constitute our daily lives, but underneath all of this apparent 
callousness we have a pride in what has been created for us by the noblest minds 
and soundest builders among those who have gone before, and the most im- 
portant element in all of this inheritance, material or spiritual, formed by the 
contributions of millions of men, each trying to be more worthy of the life 
given him by whatever concept of the divine he worshipped, is the composite 
human conscience. 



Iwv:^^?^^^ ''r^:^^y0m^4^y 




Rudolph F. Bannow 

PRESIDENT 

BRIDGEPORT AIACHINES, INCORPORATED 

BRIDGEPORT, CONNECTICUT 



Rudolph F. Bannow is president of Bridgeport Machines, Incorpor- 
ated, in Bridgeport, Connecticut. He is also the current president of 
the National Association of Manufacturers. 

Mr. Bannow was born in Sweden and e?nigrated to the United 
States at the age of thirteen. After completing his gramtnar school 
education at Holyoke, Massachusetts, he went to work as an appren- 
tice patternmaker, at 6V2 cents an hour, at the Deane Steam Pump 
Company. 

Mr. Bannow was not quite ready to settle down, however, and in 
igig he took a year off to ship on a freighter. As he put it, "I had to 
get that phase out of my system." 

On returning, he worked at various plants and, at the age of 25, 
became foreman of the Bridgeport Pattern and Model ^yorks. Seven 
years later, using his life savings and a S^,ooo loan, he bought the 
company. He and a fellow Swede, Magnus Wahlstrom, formed Bridge- 
port Machines, Incorporated, two years later. 

The company was formed just in tiyne for the depression, but the 
two Swedes managed to keep their young company afloat. Today, 
Bridgeport Machines employs 400 persons. The company is not union- 
ized, but Mr. Bannow says that his employees are content. He has 
never had a strike. The employees have a profit-sharing pension plan 
and, in Mr. Bannow' s words, "If we do well, there is also a split at the 
end of the year." 

One of Mr. Bannow's pet hates is inflation. As president of his own 
company, he has done something about the problem. Bridgeport 
Machines has put into effect only one price increase, amounting to 
12 per cent, in twenty years. 

Mr. Bannow has been active in athletics all his life and feels that 
participation in team sports is an invaluable experience for ?nanagers. 



362 



He played soccer for the Swedish Athletic Club in Bridgeport for 
many years, but he says he has now "degenerated to golf." 

For relaxation Mr. Bannow turns out patterns in wood or metal in 
his own workshop. He also sings first bass in a local male chorus, the 
North Star Singers. He has sung in the chorus for twenty-six years. 

Mr. Bannow is married and has two daughters. 

March, i960 



CHAPTER 16 

Directing^ Guiding^ and Leading 



In 1910, when I left my native Sweden to join my mother, brother, and 
sister, who had preceded me to America, I knew that a wonderful experi- 
ence lay ahead. 

Having read all of James Fenimore Cooper's books about the American 
Indian, I already had a keen interest in what was to be my new home- 
land. 

I didn't meet any Indians, but I soon learned that the glowing reports 
that the Swedish travelers had sent home about the warm and friendly 
ways of the American people had not been exaggerated. 

Having finished grammar school two months before I left Sweden, I 
attended the Holyoke, Massachusetts, grammar school for one year, started 
to work at the age of fourteen, and graduated from the evening school 
the following year. 

I learned the trade of pattern- and modelmaking, a skill that proved 
valuable in the years when my partner (a skilled toolmaker) and I built 
a business that in 1959 employed over 400 people. 

Building a business during the depression years of the 1930s was not, 
of course, always an easy task. But with the help of Elsa Erickson, who 
had changed her name to Bannow in 1920, our dreams became a reality. 

Two fine daughters, who eventually served as sales manager and 
personnel director, also helped. 

Having served in various ways to cement international relations, I 
was made a Knight of the Order of Vasa in December, 1959, by the King 
of Sweden. You might call me "Sir Rudy." 

363 



364 MANAGING PEOPLE 

The proudest achievement of my life, however, is the creation of 400 
jobs, which I beHeve, in some measure, is making a contribution to my 
adopted country. 

I have had the cooperation of a work force which has worked with me 
in the full utilization of every new production development. Such coop- 
eration has made it possible to hold our price increases to 12 per cent over 
a period of three decades. 

I believe the secret of effective leadership is not ordering people, but 
creating an atmosphere where they perform their assignments because 
they want to perform them. 

Perhaps participation in sports and athletics can teach us businessmen 
a lesson. I was captain of a soccer team for several years. I found that if 
you first present the team with a challenge, then ask them if they can 
meet that challenge, the best effort and the best teamwork are evidenced. 
So it is with business. 

Most of what follows in this chapter may sound somewhat formal and 
technical for a man who cannot put a Ph.D. after his name, but it is that 
portion of up-to-date, scholarly research which coincides with the prac- 
tical experience this Swedish immigrant has seen during his adventure 
in American industry. 



WHAT MAKES A LEADER? 

In the early stages of any man's business development, he is— or should 
be— primarily concerned with the contribution he can personally make 
to the over-all good of the organization. His unique skills, his technical 
knowledge, and his special attributes should be devoted solely toward 
meshing with the over-all efforts of the firm which employs him. 

But at some point in a capable and conscientious individual's develop- 
ment, he may well reach the stage where he can no longer provide addi- 
tional contributions to his firm's well-being and progress solely by virtue 
of his own abilities. 

At this point he becomes a manager. At this point, he must begin to 
direct, guide, and influence the efforts and capabilities of others. 

It is true that some of the world's creative geniuses achieve success and 
fame by continuing along the path of personal contribution— Edison, 
Einstein, Salk, and others. But we are concerned here with another tvpe 
of genius— that extraordinary man who can bring out the best in his fel- 
low workers. Managers are the men who can multiply their individual 
contributions by working through and with other human beings in their 
corporate organizations. They are leaders. And leadership requires a 
particular kind of genius. 

What are the requirements of management leadership? How can the 



DIRECTING, GUIDING, AND LEADING 365 

president of a firm detect potential leadersfiip qualities among the mem- 
bers of his younger, up-and-coming, middle-management personnel? 

Factors to be examined, it seems to me, can be arbitrarily divided into 
three parts: 

1. The personal attributes of the man himself 

2. His fundamental concepts of the job of managing others 

3. His understanding and skill in managing others 

The three, of course, are closely interrelated, but let's try to examine 
each of them separately for the sake of practical analysis of this compli- 
cated and delicate trait of leading others. 

Personal Qualifications 

It will not be argued, I think, that the personal traits of a given in- 
dividual are overwhelmingly important in the leadership equation. 

Recently, a committee of the Association of Consulting Management 
Engineers attempted an evaluation of this factor. A brief review of their 
findings may be helpful to us in providing a systematic approach to the 
analysis of the personal qualifications of a leader. 

The study concluded that there are only three fundamental capacities 
which provide the basis for all human development and behavior: 

1. The capacity to learn 

2. The capacity for feeling 

3. The capacity to produce energy 

Capacity to Learn. The capacity to learn is based on the functional char- 
acteristics of the brain and therefore appears to be inherent; an individual 
is born with it. Although what he does with it and the extent to which it 
is developed is a matter of training and education, it has been fairly well 
determined that no amount of effort on his or anyone else's part can 
increase this capacity beyond its inherent limits. The best that he can 
hope to do is to utilize to the fullest extent that capacity with which he 
was endowed at birth. 

Exceptional mental ability, of course, is a tremendous asset in any 
form of endeavor. Sometimes, however, its possession leads an individual 
into technical research activities, which, in turn, tend to develop a degree 
of specialization. Such specialization, more often than not, militates 
against the development of broad experience and sound judgment in a 
variety of areas considered to be necessary for anyone in a position of 
leadership. 

For this very reason, the brilliant scholar seldom develops into a posi- 
tion of leadership. He is more likely to achieve success through his own 
personal contribution, rather than by directing the efforts of others. 
Kettering, the thinker and scholar, made a contribution to General 
Motors. But so did Charles E. Wilson, the brilliant manager. 



366 MANAGING PEOPLE 

Capacity for Feeling. The next personal qualification for leadership— 
a capacity for feeling— is an interesting and complex one. 

Every newborn animal, including the human animal, starts life in- 
terested only in its own comfort. During early infancy, his wants are 
simply warmth and food. He expects the adults in his environment to 
supply this warmth and food, and he develops feelings of resentment if 
these basic needs are neglected. 

But modern psychology has shown that as the human animal grows and 
develops, he learns that he must give in order to receive. If an inherent 
capacity for feeling is present, he learns that almost equal pleasure can be 
derived from giving and from the response in others that this produces. 
The degree to which this awakening interest in people is developed is 
contingent on environment and early parental training. 

Since a leader must accomplish his objectives through others, it is ob- 
viously important that this capacity for feeling be well developed. 

But, as in the capacity to learn, there are two sides to this particular 
coin. It is quite possible to have the capacity for feeling overdeveloped 
in positions of leadership. 

Consideration for others' interests, to the extent of self-abnegation, 
produces an unrealistic approach to the problems of life. This, in turn, 
often leads to ineffectiveness in the world of business. Many otherwise 
capable men have been unable to attain any real position of leadership. 
simply because of an inability to fire delinquent subordinates, or even to 
censure them. 

Capacity to Produce Energy. The third factor listed is the capacity to 
produce energy. Whatever degree of such capacity any individual 
possesses stems almost solely from the characteristics of his parents. As in 
the case of capacity to learn, it is inherent, and he can't do anything to 
increase it. Naturally, this capacity will vary widely between individuals. 
We all know people who seem to have been born lazy and others ^dio 
have tremendous energy. There are, of course, an infinite number of de- 
grees between the two extremes. 

In the mature person, the two inherent capacities of intellect and 
energy are used to support the human relations, aims, and ideals ^vhich 
have been developed through the capacity for feeling. Possession of an 
ample supply of each of these capacities is essential for any individual 
in a high position of leadership. 

Personal Attributes. Personal attributes are derived from the three funda- 
mental capacities. The good leader in business, knowing the capacities of 
his subordinates, can help them to develop these good attributes. 

What are the attributes of a leader in business? One list, recently com- 
piled, is as follows: 

1. Understanding of people 



DIRECTING, GUIDING, AND LEADING 367 

2. Integrity 

3. Courage 

4. Objectivity 

5. Ambition 

6. Problem solving 

7. Judgment 

8. Ability to communicate 

9. Emotional maturity 

Some might wish to add to this list such qualities as ability to promote 
innovation and assumption of responsibility, but I believe the list above 
sums up things pretty well. 

Concepts of Managing Others r 

How can we classify the various concepts of leadership? One classifica- 
tion that appears to be both logical and comprehensive is the following: 

1. Autocratic 

2. Democratic ' 

3. Integrated 

The Autocratic Approach. With few exceptions, our old concepts of auto- 
cratic management have long since disappeared from the business scene. 
To many of us, the term "autocratic" creates a picture of the nineteenth- 
century businessman operating his business entirely by himself in a com- 
pletely dictatorial and arbitrary way. He does this by giving orders and 
instructions to subordinates, without consulting anyone else. Of course, 
such a description is an exaggeration, even of the most headstrong of 
businessmen of the last century. (Actually, it is quite interesting to read 
some of the management literature of that period and to realize how far 
advanced some of the pioneers in the field of scientific management were 
in their thinking seventy-five years ago.) 

However, for our purposes now, the word autocratic is used to define 
that type of leadership which results from decisions made primarily by one 
individual, with little or no consultation with other members of the 
organization. When we define autocratic in these terms, it is apparent 
that this type of leadership is still quite in evidence and, under certain 
conditions, a most effective concept. Yet the drawbacks, as we all know, 
are obvious. 

The Democratic Concept. The "democratic" concept of leadership, as it 
applies to business and industry, is perhaps best defined as a committee 
type of leadership. The leadership in this case is exercised by the com- 
mittee chairman. Unlike the autocrat, the committee chairman is re- 
sponsible for obtaining an objective by utilizing the talents, abilities, 
and experience of the committee members. It is the duty of the chairman 
to organize an agenda and to guide the discussion of the committee mem- 



368 MANAGING PEOPLE 

bers and in general keep them pointed in the direction of the objective, 
with a minimum of sidetracking and exploring of blind alleys. The 
chairman also has the obligation not to abuse his position of leadership 
by pressing his point of view or use his position of authority to sway 
unfairly the other members of the committee to his own conviction on 
the subject. 

There are some clear advantages to the "pure" democratic concept of 
leadership. The primary one is that it provides some feeling of par- 
ticipation to all members of the executive staff. Properly used, it capital- 
izes on the abilities of each committee member and can, as a result, bring 
to bear the combined efforts of the group to solve complex problems. 

Unfortunately, the democratic concept of leadership also creates some 
problems of its own. Because of its very nature, this concept of leadership 
frequently results in a divided camp. Almost invariably, "solutions" to 
problems boil down to two or more alternatives, which of course result 
in no solution at all. 

Committees will frequently split into factions. If a majority faction 
exists, then its approach is usually the one adopted over the objections of 
the minority group. The minority is almost never likely to support— at 
least, not lOO per cent— the approaches adopted by the majority. No 
matter how much lip service is given to "working together as a team." 
members of the minority executive group are not going to show too much 
enthusiasm for carrying out a project they have actively opposed. 

The other great danger inherent in this concept of leadership is con- 
ciliation. Where two factions are more or less equally divided, we de- 
velop a situation that invites compromise. On rare occasions, it must be 
admitted, compromise results in the best solution. But as most manage- 
ment men know, compromise more often is deadening. Frequently it re- 
sults in neither faction being completely satisfied or enthusiastic about 
the course of action selected. 

Occasionally, we shall find an autocratic system of leadership operating 
under the guise of a "committee." In this case, the chairman is invariably 
in a position of authority. The normal democratic committee action is 
followed as long as the direction of the committee action parallels the 
thinking of the chairman. When the thinking of the committee, or a 
faction of it, runs contrary to the chairman's, he simply uses his position 
of leadership to outline his desires clearly, and the committee graduallv 
changes its viewpoint to coincide with that of the chairman's. 

In this regard, I'm reminded of a well-authenticated story about the 
autocratic president of a large corporation who makes it a practice to 
operate under the democratic concept of management without actually 
doing so. It seems he called a noontime meeting of this "committee" in 
a fancy restaurant. The white-coated waiter presented a box of expensive 



DIRECTING, GUIDING, AND LEADING 369 

cigars and asked him if he would like one. He shook his head "no." The 
waiter then went around the table and asked the other men if they wanted 
one. Each shook his head "no." When the waiter had circled the table, 
the president changed his mind and said, "Yes, I think I will have one." 
With that turn of events, the waiter circled the table again, and each of 
the subordinate executives also changed his mind. 

Under such circumstances as these, I would certainly advise the in- 
dividual in a position of authority to use a frankly autocratic approach, 
since this is respected for what it is. Attempts at disguising it with the 
committee approach are misleading and meaningless. 

The Integrated Approach. The integrated concept of leadership, though 
difficult to describe and difficult to develop, incorporates most of the 
advantages of both the autocratic and democratic concepts and few of 
their disadvantages. 

In effect, integrated leadership is a catalyst that combines the individual 
talents of a group into a force that is a great deal more powerful than 
the sum of its parts. It reaches beyond the capability of any single member 
of the group, including its leader. It accomplishes results by integrating 
the skills and knowledge of each member of the group in such a way as 
to complement individual strengths and minimize individual weaknesses. 

Integrated leadership avoids the pitfalls of the democratic concept— 
the development of factions and compromise and conciliation. 

The important rule in this connection is to steer clear of allowing 
a situation to develop to a point where it's necessary to settle it by taking 
a vote. Vote taking automatically creates factions, often unnecessarily. 

Integrated leadership also avoids taking any action that results in a 
compromise solution. It takes a man with unusual leadership abilities to 
integrate the thoughts and feelings of an executive group in such a way 
as to incorporate all their ideas into a final result that everyone can 
honestly agree upon. The goal of the leader, in short, is skillfully to 
combine the best features of alternative courses of action, without com- 
promising, without "conciliation," of supersensitive subordinate execu- 
tives, while convincing all concerned that they had a hand in arriving 
at the ultimate decision. A big job? Of course it is. But what are leaders 
for? 

If you were to ask me for a one-word definition of each of these three 
concepts of leadership, I would answer as follows: 

Autocratic: to direct 

Democratic: to guide 

Integrated: to lead 

A good business leader will pick the system most suited to his own 
personality and to circumstances. I prefer the third category, which, in 
reality, is a combination of the first two. 



370 MANAGING PEOPLE 

Understanding and Skill in Managing Others 

I think you will agree that the individual's capacity to learn, his capac- 
ity for feeling, and his capacity to produce energy all play a significant 
part in determining his ability to lead. 

These qualities either are born in a man or are acquired at an early 
age. There is really not much we can do to change these abilities, good 
or bad, in the people we work with. However, we can definitely do some- 
thing to see that they use what abilities they have to the best advantage 
by coupling these abilities with effective techniques of leadership. 

Such techniques can be classified under three headings: 

1. Developing people 

2. Delegating results 

3. Accepting responsibility 

Developing people, or, more simply stated, helping subordinates to 
grow in their jobs, is an essential element of the good management man. 
I'm reminded of a youthful executive friend who had done an exceptional 
job as the Eastern sales manager of a large corporation. A vice-presidencv 
position opened up because of the sudden death of an officer of the firm. 
My young friend was the obvious choice for the job, until the president 
asked him, "Whom do you have in mind to take your place?" 

"No one," my friend answered. "I've never found a man I could trust 
with that much responsibility." 

That mistake cost him his big chance. He was sent back to his old 
district, under strict orders to develop managers and capable assistants 
from the top to the bottom of his organization. His ability and drive had 
made him a success, but his success would have been much greater if he 
had fulfilled his obligations as a leader to develop his people. 

Let's take a look at the second item in management skills: delegating 
results. By this, I mean the delegation of results which management ^vants. 
rather than specifying the details. If this is not done on every level, people 
may be very busy in a physical sense, but may not be accomplishing the 
objectives you have specified. 

To correct this, you must observe a basic rule of supervision: "It is the 
supervisor's responsibility to make sure that his people know ^vhat is 
expected of them." This rule helps develop leaders all the way down the 
line. You can see that it makes the supervisor take the lead. It doesn't let 
him "pass the buck" if someone under him hasn't understood what ^sas 
expected of him. 

It is here that the manager has much to gain from making certain that 
the results expected of every job are well understood up and down the 
organization. If you don't define the results that you expect, you find 
that your people are apparently busy but things don't get done. It's easy 



DIRECTING, GUIDING, AND LEADING 371 

for a man to be working steadily, doing a great deal of work, and yet 
accomplishing little for the organization. In short, he's spinning his 
wheels. 

Defining results automatically leads to accepting responsibility. Only 
after you have accepted responsibility yourself can you pass on responsi- 
bility to your subordinate. This personal responsibility is the crux of ad- 
ministration. Anyone who takes authority must assume responsibility. 



PARTFOUR 

Measurement and Control 




Norman E. Alexander 

PRESIDENT AND DIRECTOR 
SUN CHEMICAL CORPORATION 

NEW YORK, NEW YORK 



Norman E. Alexander's rise to the presidency of Sun Chemical Cor- 
poration was launched by his keen interest in the scientific management 
of a number of diverse business enterprises. This interest is even 

keener today. 

His early experience in such fields as real estate, motion pictures, 
radio-television broadcasting, and manufacturing helped him become 
president of Ansbacher-Siegle Corporation, a major organic pigment 
manufacturer, as well as chairman of the board of Realart Pictures, 

Inc. . , 

Mr Alexander's accomplishments are based on a solid educational 
background. After graduating from Columbia University and Columbia 
Law School, he found time to study management methods by attend- 
ing seminars and workshop courses sponsored by the Young Presidents 
Organization at the Harvard Graduate School of Business Administra- 
tion and by the American Management Association at Saranac Lake 

A native New Yorker, born in 1914, ^^r. Alexander contributes his 
time and talents to some of the city's civic and philanthropic organ- 
izations. His associates know him as a prodigious worker and a resouice- 
ful and warm person who knows how to organize and accomplish with 

dynamic leadership. 

Mr Alexander is interested in several other business organizations. 
He IS president of stations KXLY radio-television in Spokane, J^ ash- 
ington, and KELP radio-television in El Paso, Texas, president of 
Federal Color, Inc., Cincinnati, Ohio, and a director of the Essex- 
Universal Corporation. 

Among his varied civic and business memberships are City of .\e-w 
York Committee for i960 Olympic Games; chairman, Chemical and 
Paint Division, Greater New York Fund; chairman. Chemical Division, 
Federation of Jewish Philanthropies; Advisory Board, Chemical Ex- 

Photo by Interstate Photo, New York 



374 



position U.S.A. ip6o- American Chemical Society; Young Presidents' 
Organization; American Arbitration Association; American Manage- 
ment Association; New York Bar Association; Columbia Club; and the 
Economic Club of New York. 

Mr. Alexander's hobbies include music, photography, golf, and 
his four children-in reverse order. His associates consider him an 
unusually devoted father, who can be found most week ends at his 
home in Scarsdale, New York, tinkering with a two-cylinder sports car 
that he and his ten-year-old son Mark built, or trying to assemble an 
operating miniature missile that is their current mechanical project. 
When not occupied with his son or with three daughters, aged 5, 75, 
and ig, he and his wife, Margie, slip away to the Old Oaks Country 
Club for golf. 

March, i960 



CHAPTER 17 

Evaluating and Measuring Results 



In essence, the test of good management is the successful meeting of the 
constantly expanding challenges of competition. 

It is a time-honored conclusion that in the free-enterprise system a 
business does not stand still. It moves ahead, or it slips backward toward 
the ever-yawning chasm of oblivion. Management is forced, if not by its 
own ambition to excel, then by the inescapable principles of competition, 
to set its eye on the several objectives encompassed in the word "growth." 

THE NEED FOR SOUND OBJECTIVES 

Sound corporate planning is the evaluation, refinement, and integration 
of various functional objectives into an over-all goal. For instance, the 
attainment of research and development objectives results in the creation 
of new products, processes, and services. The basic objective of production 
is to manufacture these products at quality and price levels which will 
permit them to be marketed successfully. The reaching of market ob- 
jectives puts products, processes, and services into the hands of an 
optimum number of users in a manner calculated to meet the monetary 
needs of the business. And finally, the attainment of financial objectives 
not only supplies the money needed for growth and satisfactory relation- 

375 



oyg MEASUREMENT AND CONTROL 

ships with existing and potential company investors, creditors, and 
debtors; it also provides the yardstick for measuring management's over- 
all ability. 

A management that relies entirely upon opportunism is probably bet- 
ter than one that sets unsound, unrealistic objectives, which distract 
rather than guide and frustrate rather than inspire. Sound objectives, 
however, properly formulated and programmed, supported by adequate 
resources, and given the flexibility necessary to take advantage of op- 
portunity, are better than opportunism alone. The company that rushes 
into the Yo-yo business with hundreds of others is ultimately left stranded 
unless it has a soundly planned program that will continue to produce 
profits after a passing fad has lost its glamour. 

The successful manager lengthens his stride when he discovers the most 
efficient way of devoting his own energies to the attainment of objectives; 
the failure stalls in a quagmire of confusion centered around wishful 
thinking or unproductive worry over one facet of operations without 
seeing the integrated relationships of various corporate goals. 

Setting of objectives and achieving them on schedule has been dictated 
by competition. Pressures have forced managers at all exposed levels 
to recognize that they must manage these pressures or be managed bv 
them. They have accomplished this end by establishing goals, not m 
isolated instances, but as standard operating procedure, and by measuring 
their accomplishments at frequent intervals. 

When clear-cut objectives are established, the manager has a construc- 
tive purpose in his work. Without them, he tends to feel a lack of ac- 
complishment since his job consists in putting out fires so the status quo 
may be maintained. With objectives, he knows what his superiors expect 
him to accomplish. Conversely, with no agreement upon where he should 
be heading, he is always aware of the inevitable criticism from second- 
guessers who wonder out loud if he couldn't have gotten further than 
he did. Despite the obvious need, objectives are not always established 
when they should be, as the following list shows: 

Factors That Delay the Establishing of Objectives 

1 Misguided attempts to state all objectives in technically perfect language. 

■ Agreement on principles can become lost in arguments over semantics. In 
addition, overdefinition builds unnecessary walls. 

2 Failure to distinguish between "objectives" and "policies and procedures. 

■ For example, an objective has been defined by Dr. H. B. Maynard as a goal 
A policy is a guide to help men decide how to do things. It describes a gen- 
eral course, but its application requires decision. 

9 Lack of understanding of the reasoning behind objectives. 

t Trying to guess what the boss wants instead of assembling and evaluating the 
information necessary to make sound decisions. 



EVALUATING AND MEASURING RESULTS 377 

Not only is the energy of a division manager better utilized when 
directed toward definite goals which were established with his participa- 
tion, but top management can channel its efforts toward more profitable 
accomplishment by concentrating on trouble spots. This is frequently 
called "management by exception'-letting "up-to-standard" divisions run 
without interference and concentrating on the divisions that are missing 
their objectives. 

Thus one of the important elements of progressive management is 
knowing the answer to three simple questions: Where are we going? Where 
are we now? How well are we progressing? 

Constant awareness of these questions should contribute to what could 
be called "results thinking" at all levels of management. Every supervisor 
should examine every activity in his department in the light of stated 
company objectives and seek to achieve them through application of his 
own skills. 

Modern business is so intricate that no man can possibly master every 
phase of operations well enough to keep posted on all developments 
which influence the realization of end objectives, much less dictate the 
detailed procedures by which these objectives can be reached. Efficient 
delegation is a test of managerial ability. However, delegation must be 
accompanied by an equally efficient method of keeping in touch with 
delegated operations. Fortunately, all basic corporate activities-research, 
production, marketing, and finance-can be reported, measured, and 
evaluated in terms of progress toward ultimate objectives. 

The problems of directing growth are: 

1. Setting acceptable standards that accurately reflect objectives 

2. Checking operations against these standards 

3- Spotting variations ' ~? 

4. Quickly finding the reason for these variations . - i . 

5. Evaluating the causes ^ 

6. Setting indicated corrective measures in motion 

The remainder of this chapter is devoted to the discussion of these six 
subjects. It is my purpose to demonstrate the advantage of measurement 
and evaluation. 



SETTING STANDARDS 

To be effective, standards must be designed to fit the individual needs 
of a company. For example, a chemical company does things very differ- 
ently from the way they would be done by one engaged in the manufac- 
ture of aviation equipment. One company accounts for capital assets in 
one way, and another must follow an entirely different system. For in- 
stance, at Sun Chemical we place great emphasis on the ratio of profits to 



378 MEASUREMENT AND CONTROL 

total assets, which involves painstaking analyses of such cost problems as 
continued maintenance of equipment versus replacement costs. In an- 
other company, the emphasis might fall on performance of plant per- 
sonnel, incentive-wage payment, analyses of the cost-and-profit effects of 
wage differentials in each pay period, overtime, and related production 
costs. 

Regardless of type of business, simplicity is to be desired over com- 
plexity in the setting of standards. Entire books have been written on the 
setting of standards to be used in reporting, measuring, evaluating, and 
improving corporate results. For the purpose of this chapter, discussion 
is confined to reviewing certain prerequisites. 

First, information supplied top management regarding delegated ac- 
tivities is of substantial value only when it can be used to evaluate the 
rate of attainment of previously set objectives. A chief executive cannot 
be really effective unless he has the means of seeing that objectives are 
reached on schedule. 

Second, and equally important, objectives and standards of measuring 
their achievement must be understood and accepted throughout an organ- 
ization if they are to serve their purpose of charting a course and facilitat- 
ing the correction of variances from that course. Their importance, 
meaning, and use must be understood by the foremen who influence 
production costs. They must equally be understood by the salesman who 
makes the ultimate decisions on his calls for the day. To be accepted, 
objectives and standards of measurement must be reasonable. The chief 
executive cannot assume that a given standard means the same to his 
subordinates as it means to him. Success depends more on a common 
understanding of objectives and their necessity than on setting forth 
details in technical language. 

Third, objectives must reflect hidden as well as obvious potential. In 
addition to a fair share of the present market, they should take into 
consideration expansion of given markets through increased absorption of 
present products; profitable development of new products; additional 
products that can be produced by existing facilities; practical plant ex- 
pansion and sound acquisitions that can help reach specifically deter- 
mined goals more quickly and economically. 

Fourth, they must provide for periodic review. Evaluation and measure- 
ment cannot wait for the completion of a project. Periodic checks not 
only indicate lagging performance, but also future difficulties, and some- 
times the need for alteration of plans or even adjustment of objectives. 

And fifth, they must be reduced to a common denominator to avoid the 
confusion of trying to compare apples with bananas. It is only human for 
managers at various levels to think in terms applicable to their own 



EVALUATING AND MEASURING RESULTS 379 

operations. For instance, the plant manager, thinking only in terms of 
total shipments, may push shipments at the end of the month to the 
detriment of efficient operations. The tendency of salesmen to think 
in terms of making sales leads to endless questions about prices and 
credits. 

What is the common denominator? 

Profit as a Yardstick 

The chief executive must perforce evaluate all performance in terms of 
profit. A company cannot exist, much less grow, without money; and 
profit is the only dependable yardstick for measuring growth, although 
the period for attaining desired profit objectives has certain flexibility. 

Profit as a percentage of sales of present products, manufactured with 
present equipment, fails to take into consideration product obsolescence 
or the potential of modernized or expanded facilities. At Sun Chemical 
Corporation, our standards are set in terms of return on investment, 
which we are constantly seeking to improve. Instead of accepting stand- 
ards set at lower management levels and translating them at the top into 
return on investment, we have sought to teach all levels of management 
to think in terms of the investment which has been entrusted to their 
stewardship. 

As everybody knows, the percentage return on investment can be ar- 
rived at simply by dividing the total investment of a business into its net 
profit before taxes. However, such a short cut does not provide a provoca- 
tive yardstick because it fails to take into consideration the interrelation- 
ship of investment, sales, and net profit before taxes, all of which must be 
evaluated simultaneously in setting realistic growth goals. 

Accordingly, at Sun, we added the "turnover factor" (sales divided by 
investment) to arrive at this formula: 

Net profit ^ sales . : , 

— ^r-S X -• = return on investment 

Sales investment 

The mathematical concepts are unchanged, but a new dimension of think- 
ing is added. 

For instance, at Sun, a division manager is evaluated and compensated 
in terms of what he does with the assets that are assigned to his operations. 
Let us suppose that a new manager of a sluggish division is assigned assets 
with a net worth of $10,000,000, which, at a turnover factor of 2, would 
yield $20,000,000 sales. However, he asks himself, what could be accom- 
plished with 25 per cent more capital invested in local plants, branch 
offices, or any of several other expansion moves? His market research and 
cost studies indicate that he could boost his turnover factor to 2.5. 



380 



His breakdown looks like this: 



MEASUREMENT AND CONTROL 



Item 



With present 
investment 



With additional 
capital 



Net worth of assigned assets 

Total investment 

Turnover factor 

Sales 

Anticipated profit as a percentage of 

sales 

Net profit 

Return on investment 



$10,000,000 
$10,000,000 
2 
$20,000,000 

10% 
$ 2,000,000 
20% 



812,500,000 
512.500,000 

2.5 
$31,250,000 

10% 
-S 3.125.000 
25% 



This does not take into consideration the added factor that increased 
volume should produce a higher profit in relation to sales. Of course, 
added capital is no guarantee of increased return. The point is, without 
the added element of thinking about sales, profit on sales, and return on 
investment in one package, middle management seldom gets beyond the 
point of thinking solely in terms of return on present assets, which is a 
losing battle against obsolescence. 

When a division manager knows what is expected of him— what return 
he must produce on the assets assigned for his operations and what sales 
and growth targets he is expected to reach within a given period-his 
mind is freed of much of the worry that follows such ambiguous instruc- 
tions as "make as much money as you can." 

And top management can concentrate on correction of variances. 
Top management, however, must also assume the responsibility for ana- 
lyzing and preparing for situations, such as approaching periods of either 
recession or opportunity, which operating management cannot see in the 
day-to-day task of running the business. 

Need for Flexibility 

This brings us to the sixth criterion of good standards. They must be 
flexible enough to be adjusted quickly to take into consideration both 
crises and unforeseen opportunities. 

A certain degree of practical flexibility should be included among 
management goals. For instance, it is easy to get boxed in with facilities 
that operate very efficiently at a high rate of production but become an 
inflexible burden when market demand slackens; similarly, the efficiency 
of equipment should also be measured in relation to its adaptability to 
quick production of new products for full market advantage, as well as 
low-cost manufacturing of present lines. 

When a new top management undertook the task of rebuilding and 



EVALUATING AND MEASURING RESULTS 



381 



expanding Sun Chemical, it introduced a basic set of standards which 
could be applied to: 

1. Short-term goals, or those which could be realized in one year 

2. Intermediate goals, or those to be attained in from two to five years 
Long-term standards came later. 

Our primary standards reflected: 

Return on investment 

Pre-tax profit as a percentage of sales 

The company had diverse product lines, most of them with a good 
growth potential but each of them with its own peculiar market problems. 
Its products included inks for the packaging industry, newspapers, period- 
icals, lithographing, and metal decorating, the combined market for which 
in recent years has kept steady pace with the gross national product; 
machinery for printing; organic pigments for inks, paints, textiles, cos- 
metics, floor coverings, plastics, and other such end products; textile 
chemicals for water repellency, spot and stain resistance, and wash-and- 
wear qualities; paper and fabric coatings for electrical insulations, 
closures, aircraft fabrics, and reinforcements; paints, enamels, lacquers, 
and varnishes for industrial and home use; custom finishes; maintenance 
coatings; concrete additives for curing, hardening, and dampproofing; 
caulking and sealing compounds; and remedial restorations. 



Item 


Budget 


Forecast 


, - 


{In thousands of dollars) 


Base 
year 


Base 
year 
+ 1 


Base 
year 

+ 2 


Base 
year 

+ 3 


Base 
year 

+ 4 


Base 
year 

+ 5 


Sales 

Pre-tax profit 

Per cent of sales 

Turnover factor 

Investment in assets . . 
Per cent return on in- 
vestment—pre-tax . . 


$57,021 

$ 5,812 

10.19 

1.99 

$28,700 

20.28 


.$68,300 

$ 7,500 

10.98 

1.92 

$35,600 

21.08 


$74,500 

$ 9,200 

12.35 

1.97 

$37,900 

24.33 


$84,300 

$11,100 

13.17 

2.02 

$41,800 

26.60 


$91,700 

$13,400 

14.61 

2.01 

$45,600 

29.37 


$100,900 

$ 15,700 

15.56 

2.01 

$ 50,200 

31.28 



Fig. 17-1. Example of tabulated basic financial objectives showing current budget and 
five-year forecast. 



For decentralized administration, the several divisions producing these 
diverse products were assigned to one of three operating groups, on the 
basis of market, production, raw materials, or research affinity. Each group 
of divisions was placed under an operating vice president. The following 
discussion is based on techniques Sun has developed lor evaluating and 



382 MEASUREMENT AND CONTROL 

measuring group, division, and branch performance, although not neces- 
sarily on case histories within the company. I have attempted instead to 
combine proven techniques and hypothetical situations in order to demon- 
strate the practical value o£ constant measurement and evaluation of 
performance. 

For instance, a graduated and modest increase in return on invest- 
ment is usually a primary objective. To accomplish this we would set 
an attainable turnover factor. Let us suppose, for the sake of illustration, 
that the primary objective was 30 per cent return on assets and the desired 
turnover factor was 2. 

Forgetting for the moment the probable expansion of existing assets 
and possible acquisitions and taking into consideration only existing 
assets plus reasonable investment for modernization, a company's basic 
financial objectives could be tabulated as shown in Figure 17-1. 

MEASURING RESULTS AGAINST STANDARDS 

We have seen that the first step in top management's control over the 
affairs of a business is the setting of realistic standards which require 
middle management to stretch in order to reach, thus extending above- 
average effort. Because it is impossible to review all aspects of perform- 
ance, top management must select certain strategic check points which 
will provide an adequate indication of what is going on. Such checking 
must be: 

1. Balanced 

2. Timely 

3. Economical 

4. Comprehensive 

The element of balance is essential if top management is to stop an 
indicated adverse trend before serious damage is done. For instance, 
this balance must include timely sales information to avoid, as is shown 
later on, the danger of overselling in an opportune period to the detri- 
ment of later business activity. It should not be too detailed or involve 
staff additions that would be uneconomical. To be comprehensive, it 
must take into account production methods in order to forestall such 
plant-level pitfalls as pricing out of a product solely on a direct-labor 
basis to the exclusion of concealed burden. Although these factors are 
taken for granted by top management, they are frequently found to be 
the cause of variances from standards at lower levels. 

The second step in top management control is to compare actual 
performance with standards and goals for a specific period. 

At Sun Chemical, this is one of the responsibilities of the management 
committee, which consists of the president, the operating (group) vice 



EVALUATING AND MEASURING RESULTS 383 

presidents, marketing vice president, treasurer, secretary, and assistant 
secretary. This committee meets weekly to review and discuss any vari- 
ances. 

At least once a month, it reviews corporate and group performance. 
At other fixed intervals, an intensive chart session is held to review 
each division's progress, including: 

Sales 

Cost of goods 

Selling expenses 

Inventories 

Return on investment 

Variances from plans plus steps necessary to correct them 

These factors are studied in terms both of established goals and current 
market trends. Division managers are frequently called into conference 
with the management committee not only to discuss variances from 
established standards, but also to adjust goals according to changing 
conditions. The advantages of meeting with division heads are twofold. 
It provides firsthand information to top management, and it exposes the 
division people to top management thinking. 

The process of review starts with the performance of the corporation 
as a whole. But it does not stop there. Unless a timely check is made 
on the performance of the separate groups, the temporary above-standard 
performance of one may conceal a serious below-standard trend of 
another. The same applies to division performance, which is checked 
monthly by the group vice president and his staff. 

The charts which follow provide examples of management efforts to 
achieve timely, economical, comprehensive, and balanced reporting 
methods. 

For the sake of clarity, the first charts presented (Figures 17-2 to 17-5) 
compare results with standards for the first seven months of the year 
in order to give a broad, understandable picture of their use. In the 
discussion of variances later in this chapter, earlier segments of the 
picture will be considered. 

The first look at over-all performance is usually centered on sales. 
This is the result of the pressure on profits from the steady increase in 
costs that marked the inflationary period which followed World War 11. 
A very slight decline in sales volume frequently produced a much larger 
drop in profits. Under such conditions, even the smallest gap between 
forecasted and actual sales has a devastating effect. 

Two complementary charts are helpful in spotting and evaluating 
variances from established sales goals. The first (Figure 17-2) shows 
monthly net sales, and the second (Figure 17-3) projects sales on an an- 
nualized basis. 



384 



MEASUREMENT AND CONTROL 



5,500 

5,250 

5,000 

^^ 4,750 

1H 4,500 

go 4,250 

HO 4,000 

3,750 
7o VARIANCE 





















.-ts : 






ACTUAL-^^ 








y 


\ 
\ 








'^ 


^^^ 


""\ 


/ 




^N 






/ 


^-. 


BUDC 


5ET 


\ 


/ 
/ 








' 






/ 




















1 ^ 


f 




















^ 




















(4.0) 0,2 3.1 2.6 2.9 17 0.1 








1 












\ •• 1 



58.000 

56,000 

,n 54,000 

^< 52,000 

v^O 50,000 

g^ 48,000 
KO 

46,000 
7o VARIANCE 



M J J 

MONTH 



Fig. 17-2. Consolidated monthly net sales. 





















^- 


- — 













yC 


:r^ 


rrr 


— - " ' 












ACTUAL 


-;r^ 


^\ 




















/ 


y^ 




^BUDGET 














^ 


/ 
























■ 




















(4.0) (1 


.9) (0 


1) 


6 1 


1 1 


2 1 


1 










^ 

























M J J 

MONTH 



Fig. 17-3. Consolidated year-to-date net sales, annualized. 



SPOTTING VARIANCES THAT WARRANT 
TOP MANAGEMENT ATTENTION 

Catching variances early is a primary responsibility of the manager in 
whose area they occur. If they are significant, he may wish to call them 
to the attention of his superior along with a report on the corrective 
measures undertaken. 

Variances from sales are a yellow warning signal. They indicate the 
need for a close watch on pre-tax earning performance (Figure 17-4), with 
attention both to marketing activities and cost control. 

Variances in profits are usually of considerable magnitude, or reflect 
trouble in more than one division before they show up significantly in 
the reports reaching top management. Hence, at an early stage, immediate 
attention should be given to effects on over-all profit goals. 

Here again the annualized chart is helpful in seeing where the company 
is going at its current rate of progress. However, it must be kept in mind 



EVALUATING AND MEASURING RESULTS 



385 



that the annualized charts are projections arrived at by multiplying the 
cumulative results of the year to date by the quotient obtained by divid- 
ing 12 by the number of elapsed months. 



700 
650 
600 
550 

,n 500 

§< 450 
<^^ 400 

I: -0 

° 300 

250 

200 
7o VARIANCE 





















/. 























^ 


\ 






ACTUAL 


y^ 








X 
X 




\ 

\ 








/ 


^^^^^^ 


\, 


/ 








\ 








/ 








/ 
/ 








\ 
\ 






f 


7 


BUD 


GET- 


N' 














1 
























1 
ll 






















^-.^ 


f 1 













































(21.3) (14.9) (4.6) 6.3 9.8 5.0 4.6 



































M J J 

MONTH 



Fig. 17-4. Consolidated monthly pre-tax profit. 

Figure 17-5 shows that the budgeted annualized profit has been attained 
at the end of July, but obviously there is a serious drag on profit some- 
where. For the sake of illustration, the hypothetical case presented here 
placed the trouble in several operational areas so that each might be 



6,000 

5,500 

5,000 

<5^ 4,500 

^< 

5 zi 4,000 

g Q 3,500 

H^ 



3,000 



2,500 
7o VARIANCE 





















_^- 





-^^ 












^ 




r--' 










Qi r 


DGET 










. 


^^ 


f^ 




















</ 
























A^ 


"-- A ^n 


"UAL 
















"'*• 


y 






















/ 


















(2 


.3) (16 


.3) (12 


2) (6 


.1) (1.9) (., 


3) . 


? 










1 

























M 



M J JASON 

MONTH 
Fig. 17-5. Consolidated year-to-date pre-tax profit, annualized. 



examined for its influence on the achievement of over-all corporate ob- 
jectives. The fact that variances in different areas can be spotted and 
evaluated emphasizes the tremendous advantages that medium-sized and 
large companies receive from realistic, aggressive short-term planning 
and corrective measures tied to long-range needs and objectives. 



ogg MEASUREMENT AND CONTROL 

Even if corporate results are up to standard, top management must 
check the achievements of individual component groups to avoid any 
neutralizing effect of highly divergent divisional performance. 

For instance, although corporate performance is slightly above standard, 
analysis of Figure 17-6 shows serious variances for an extended period in 
Group I (seven months' sales off 0.9* per cent and pre-tax profit 5.7* per 
cent below standard) and an ominous development in Group II (July 
sales 12.it per cent below standard and pre-tax profit off 26.6t per cent). 
As shown later on, factors contributing to the situation in Group II can 
be eliminated by prompt action at an early date. 



July 

{In thousands of dollars) 


Item 


Month 


Year to date 


Actual 


Budget 


Over (under) 
budget 


Actual 


Budget 


Over (under) 
budget 


Amount 


Per 

cent 


Amount 


Per 
cent 


Net sales: 

Group I . . . . 
Group II . . . 
Group III . . . 

Total 

Pre-tax profit: 
Group I . . . . 
Group II . . . 
Group III . . . 

Total 


$2,297 

983 

1,238 

$4,518 


$2,219 
1,118 
1,176 

$4,513 


$ 78 

(135) 

62 

$ 5 


3.5 

(12.1)-t 

5.3 

0.1 

7.1 

(26.6)t 
16.8 

4.6 


$15,968 
9,169 
7,219 


S16,113 
8,831 
7,067 


S(145) ' 
338 1 
152 


(0.9)* 
3.8 
2.1 
1.1 

(5.7)* 

5.0 
20.5 

0.2 


$32,356 


S32,011 


S 345 


$ 285 

47 

125 


$ 266 

64 

107 


$ 19 

(17) 

18 


$ 1,886 
629 
525 


S 1,999 
599 
436 


S(113) 
30 
89 


$ 457 


$ 437 


$ 20 


$ 3,040 


$ 3,034 


S 6 



Fig. 17-6. Example of monthly report giving actual versus budgeted net sales and 
pre-tax profit summarized by groups. 

At Sun, the spotting and correcting of divisional variances is the 
^roup vice president's responsibility. However, continunig variations 
from budgeted performance for a group call for top management inquiry 
into the next level of operations, in this instance, the specific divisions 
which are pulling an over-all group below its established profit standard 

In examining divisional performance, it is necessary to keep m mind 
that variations from pre-tax profit goals, which have been set to achieve 
the desired return, are caused not only by failure to obtain budgeted 
sales volume, but also by off-standard operating costs. 



EVALUATING AND MEASURING RESULTS 



387 



DETERMINING THE REASONS FOR VARIATIONS 

The hypothetical situation charted in Figure 17-6 for Group I reflects, 
among other things, the effect on over-all performance of runaway pro- 
duction costs in one division, designated as Division A, as well as above- 
budget selling costs in Division A and also in Division B. The group 
chart shows only the effect, not the cause. However, in each instance, 
the variations are apparent in charted divisional operations for the 
opening months of the year. Also, examination of sales performance 
alone is deceptive in the case of both divisions. 

For instance, sales performance in the early months of the year for 
Division A might have been as shown in Figure i7-7<2. 



LEGEND 
ACTUAL — 
BUDGET -- 



700 
600 
500 
400 
300 






















1 






// 
// 


^^^ 


( 




V 


/ 




\ 










/ 


L_ 








\ 



J F M 

(a) Net soles 



125 
100 
75 
50 
25 




\/ 



J F M A 

(b) Pre-tax profit 




J F M A 
(c) Cost of goods sold 



Fig. 17-7. Monthly performance of Division A, Group I, first three months. 



It can be seen that, from the standpoint of sales volume alone, all is 
well. However, Figure 17-7^ tells another story. Division A's monthly pre- 
tax profit is well under budget. A quick glance at production costs (Figure 
17-7C) discloses the area where immediate corrective action is needed. 

Many obvious factors contribute to rising production costs. Others 
can be ferreted out only by top management inquiry. Let us assume that 
the situation under discussion developed after a division head convinced 
top management of the competitive advantages of dividing a geographical 
sales area into Zone I and Zone II and the building of a new facility to 
supply the customers in Zone II. 

Higher-than-normal production costs are to be expected in the start-up 
of a new facility. However, it will be noted in Figure 17-7C that, instead 
of gradually correcting themselves, they continued to rise. 

In our study of possibilities, let's attribute the causative factor to the 
ambition of the division head to make an impressive showing for his 



388 



MEASUREMENT AND CONTROL 



new zone. To do this, he routes orders from customers along the 
boundary line between the two zones to the new facility, thus cutting 
down the volume for the older plant. 

Although manageable costs such as those for material and hourly labor 
can be adjusted to the lower volume, relatively fixed costs such as manage- 



DIVISION A-GROUP I 



450 

425 

^^ 400 

<:i 375 

go 350 

ffe 325 

300 























^ 








/ 


\ 




>ACT 








/ 


\ 








/ 




















\ 


h^ 




^^^ 


N,, 






/ 










c^ 


// 




^ 


^. 


/ 

/ 












V 










\ 


/ 










1 

























M J J 

MONTH 



Fig. 17-8. Monthly cost of goods sold, first seven months. 
DIVISION A-GROUP 1 



800 




BUDGET- 



M J J A S 
MONTH 
Fig. 17-9. Monthly net sales, first seven months. 



i< 75 

^o 50 

xu. 25 
»- o 













DIVISION /i 


-GROUP 






























^^ 






BUDGET- 


— ^ 


h-^^*—- 







^ 


^^ 










"-. 


.-' 




^ 


-ACT 
















\ 






















M J J 
MONTH 



Fig. 17-10. Monthly pre-tax profit, first seven 



months. 



ment overhead, depreciation charges, insurance, taxes, rentals, and main- 
tenance pull operations of the formerly profitable facility to a level 
below the break-even point. Thus, instead of benefiting from his new 
facility, he has aggravated his over-all cost variance. 

Once the cause for the variance has been spotted, corrective action 
can be taken and the division's performance improved, Figures 17-8 to 



EVALUATING AND MEASURING RESULTS 389 

17-10 show the results after corrective action has been taken. It can be 
seen that the cost of goods sold has been brought into line and pre-tax 
profit for the seventh month exceeds the budgeted amount. 



EVALUATING THE CAUSES OF VARIATIONS 
FROM STANDARDS 

The three examples chosen for this section all involve sales problems. 

Continuing top management's inquiry into the variations experienced 
in Division A, Group I, of our hypothetical company, we must evaluate, 
among other things, the higher selling expenses involved in training 
new salesmen that were inherent in the decision to create a new distribu- 
tion zone. 

Increased selling expenses are to be expected in such situations. The 
question is, how long is it reasonable to let this type of variation continue 
without corrective action? Again, a month-by-month watch is kept on 
charts such as the one shown in Figure 17-11 which, when operations 
are on-standard, are checked at a lower management level. 

Standards, or norms, should be established after sufficient time has 
elapsed for setting practical standards for the measurement of the indi- 
vidual salesman's effort in the new territory. Some practical standards 
which may be used to measure sales performance are given in the follow- 
ing list. When selling expenses are out of line, it is necessary to determine 
specific variances from the established standards. 

Some Typical Standards for Sales Performance ^ 

Quotas are quantitative goals assigned to territories and individual salesmen. 
When based on accurate sales forecasts, quotas are useful for control pur- 
poses. When based on guesses or used for inspirational effects, they are 
valueless as standards. 

Ratio of Selling Expenses to Sales Volume helps the individual salesman keep 
expenses and orders in proper balance. Like quotas, they must fit the mar- 
keting situation in a given territory. 

Ratio of Net Profit to Sales keeps the division and branch manager's atten- 
tion focused on selling a balanced line. 

Ratio of Sales Coverage to Potential Buyers provides the salesman with a 
standard to measure the thoroughness with which he works his territory. 

Average Cost per Call emphasizes the importance of making calls profitable. 

Effective Use of Time makes a graphic distinction between time spent on 
productive and time spent on nonproductive sales-related activities. 

Initial inquiry might well be directed toward the individual salesman's 
use of his time. Experience has shown a direct relationship between 
U§e of time and satisfactory meeting of sales and profit goals. 



390 MEASUREMENT AND CONTROL 

For instance, the following comparisons are drawn from a 1954 Univer- 
sity of Michigan case study of the performance of two salesmen in 
specific sales territories. ^ 

The better salesman spent his time as follows: 

Average time per call: 84 minutes 

Time with buyer: 43 minutes 

Average waiting time: 3.6 minutes 

Travel time per call: 19 minutes 

Office work per call: 9 minutes 

Entertainment time per call: 4.3 minutes 

Other miscellaneous time (buyer out, etc.): 5.1 minutes 

Number of calls: 62 

Total time worked: 85 hours 

By contrast, the problem salesman's time was spent as follows: 

Average time per call: 223 minutes 

Time with buyer: 37 minutes 

Average waiting time: 9 minutes 

Travel time per call: 68 minutes 

Office time per call: 21.5 minutes 

Entertainment time per call: 21.5 minutes 

Other miscellaneous time: 55.7 minutes 

Number of calls: 35 

Total time worked: 126 hours 

In brief, the problem salesman worked 50 per cent longer than the 
man who made efficient use of his time, and he made only half as manv 
calls. 

Proper guidance in more efficient use of time can lead to improvement 
such as that noted in Division A's selling expense performance charted 
in Figure 17-11. 



DIVISION A-GROUP I 



150 
coJC? 140 
§3 ,30 
go 120 

Ko no 









><r 


-ACTUAL 








y 
y 


s 








// 


^^ 


rn 


\, 






\y 










^ 


// 
// 


BUDC 


ET^ 


^ 


V 














* 


/ 




X 


/ 










1 

























M J J 

MONTH 



Fig. 17-11. Monthly selling expense. 

1 From a paper by Frank R. Bacon, Jr., on work done under the direction of Donald 
R. G. Cowan, professor of marketing. 



EVALUATING AND MEASURING RESULTS 



391 



Profit-producing Variations 

Not all variations from sales and profit standards are to be viewed 
with alarm. Proper evaluation will show that some promise long-term 
benefits. 

For instance, in seeking the source of Group I's trouble, undue top- 
management interference could have resulted from improper evaluation 
of variances from sales and profit standards discovered in Division B's 
early-month reports. 

Figure 17-12 shows the monthly net sales, selling expense, and pre-tax 
profit for Division B. It will be noted that net sales are under budget 
while selling expense is well above budget. The resulting poor profit 
performance is readily apparent in Figure 17- 12c. 

LEGEND 

ACTUAL 

BUDGET 




•-,/ 



J F M 

(a) Net sales 



J F M A 
(b) Sel ling expense 



J F M A 
(c) Pre-tax profit 



Fig. 17-12. Monthly performance of Division B, Group I, first three months. 

Inquiry revealed a decision, made at the division level and approved 
by the group vice president, to exceed budgeted advertising and promo- 
tional expenditures for the months in question in order to create a 
receptive market for a new product line. The decision, based on budget 



1,300 

^^ 1,200 

^d 1,100 

z) o 

0*=^ 1,000 

^-o 900 











TUAL 








/^ 


--^ 










y 


AC 


P^ 





/ 


/ 




X 










:y 


■^ 


UDGE 




:^^ 


,^ 












— 




















> 

























AMJJASOND 
MONTH 



Fig. 17-13. Monthly net sales of Division B, Group I, first seven months. 



892 



MEASUREMENT AND CONTROL 




jFMAMJJAbU 
MONTH 
Fig. 17-14. Monthly selling expense, Division B, Group I, first seven months. 





150 

125 

100 

75 


1 






















CO CO 


BUDGET^ 




^ 




^^ 


^^^ 


'^•** 






B 






/'. 


^ 


'""' 


^^.^ 


/ 
/ 






■^— ^ 


= § 






A 








" 










ffe 






' 






















50 


U 

























JFMAMJJASOND 
MONTH 
Fig. 17-15. Monthly pre-tax profit, Division B, Group I, first seven months. 

flexibility to take advantage of sudden opportunity, was aimed at pro- 
ducing above-standard sales and profit performance in the months ahead. 
Top management evaluation of the arguments made in defense of the 
above-budget expenditures showed them to be sound. Permitted to follow 
its course of action, by midyear Division B had brought its selling ex- 
penses back toward standards and produced the results shown in Figures 
17-13 to 17-15. 

Dangers Inherent in Above-standard Variations 

Variances in sales and profit above standard as well as below warrant 
examination. Barring unexpected opportunity, which should be called 
to top management's attention for reexamination of budgets, sales varia- 
tions above standard reflect either poor market forecasting or something 
amiss in seasonal patterns. 

For instance, through overaggressiveness during a midwinter sales cam- 
paign. Division H, Group I, produced sales which were almost double 
the budget amount for the first quarter. The division's pre-tax profit was 
also well above budget for the same period. However, such record per- 
formance was short-lived. Prompt inquiry and evaluation would have 
shown that first-quarter sales were being made at the expense of sales in 
the following months. Referring to Figures 17-16 and 17-17, it can be seen 
that sales fell off drastically after the first quarter, with a corresponding 
adverse effect on profit. 



EVALUATING AND MEASURING RESULTS 



393 



450 
400 
350 



to of 
Q< 300 

^o 250 

9 200 



150 
100 





^ 


\- 
























^ 


\ 


,.---. 




-BUDGET 














\ 


y 




\ 












t 


y\ 




.ACTUAL - 





^-^ 


^ — ^ 


s 
\ 


_^ 






/ 
/ 




X 












-V 


/ 




\ 




V 
























\ 












^ 

























M J J 

MONTH 



Fig. 17-16. Monthly net sales, Division H, Group II. 



Q< 50 
^ -J 

< -J oc 

CO o ^-^ 

















Dl 


DGET 










— " 




^*^^ 


■""' 


"*"~.^ 


--<Z. 




_^ — 


.^ 






^-^ 


--' 


"N 


-ACTUAL 






















^" 















J FMAM J J A SON D... 

MONTH 

Fig. 17-17. Monthly pre-tax profit, Division H, Group II. 

The effect of Division H's performance on the entire group can be seen 
in Figures 17-18 and 17-19. Monthly pre-tax profit of the group was well 
over budget for the first quarter, but by July, the group's pre-tax profit 
had dropped to 26.6 per cent below standard. The cumulative effect can 
be further evaluated on the basis of annualized figures for the period. 
Taken together, the two charts indicate that above-average effort will be 
required of all divisions in Group II for the remainder of the year to 
reverse the downward trend and keep the group from falling below its 
budgeted return on investment. 



160 

140 
120 

i< 100 

< J 
ooo 80 



X Li. 



20 

7o VARIANCE 









































,j^-— BUDGET 




^v 


> 








^, 


--l^::: 


y 


\ 




\y 


' 




"v 






/ 








\N 


/ 


' 










^. 


// 


ACTUAL-^ 


A\ 
















/ 








\ 




































2Li 25.6 30.5 1 1.0 2.9 (I5.2)(26.6) 











FMAMJ JASON 

MONTH 



Fig. 17-18. Group II monthly pre-tax profit. 



394 



MEASUREMENT AND CONTROL 




7oVARIANCET 21.1 22.8 26. 20.7 16.1 8.8 5.0 





Fig. 17-19. Group II year-to-date pre-tax profit, annualized. 



STARTING CORRECTIVE ACTION 

As previously stated, spotting variations is a primary responsibility 
of line management. Similarly, corrective action is the line manager's 
responsibility, with staff guidance called for only when needed. 

It is for this reason that top management at Sun Chemical is normally 
provided only with reports on sales and profits of its various groups. 
Detailed division reports on sales, profit before taxes, cost of goods, selling 
expenses, and the like, go only to the group management concerned, 
except when a critical group variance from standards requires top man- 
agement examination of the causes. Similarly, branches and each lower 
management level report only to the control point above them. 

This prevents overeager staff members from assuming a dominant 
role in both planning and operations. The underlying purpose of stand- 
ards is to permit orderly delegation of responsibility for and measurement 
of performance. 

In a complex business, many activities must proceed without waiting 
for top management decision or guidance. Measurement against estab- 
lished standards is concerned primarily with appraising current progress 
to see if line operations are operating effectively and reviewing completed 
projects as a means for evaluating performance and establishing bases 
for setting standards for future operations. 

Failure to meet objectives beyond a reasonable period requires careful 
evaluation of the manager concerned. The first step is to make sure that 
the objectives are clearly understood. If variances continue, the manager 
should be appraised on the following: 

1. Personal performance 
a. Knowledge of his field 
h. Up-to-date knowledge of his market 

c. Acceptance of responsibility 

d. Delegation of both responsibility and authority 



EVALUATING AND MEASURING RESULTS 395 

e. Attitude toward budgets, which represent goals to be achieved 
through correct use of money, rather than licenses for spending 

2. Relations with others 

a. Ability to judge others 

h. Promoting teamwork 

c. Ability to express ideas clearly 

3. Character qualities 
a. Intelligence 

h. Integrity 

c. Drive 

d. Perseverance 

e. Ambition 

/. Cooperation 

g. Moral and civic responsibility, which is a key to basic attitudes 
It is highly important that goals be understood and accepted. This is 
much more important than keeping a tight rein at all times on the 
day-to-day activities aimed at achieving these goals. This will be accom- 
plished more efficiently if: 

1. Goals are properly identified with individual responsibility 

2. Objectives are agreed to by the person responsible for carrying 
them out 

3. Control procedures require only a limited amount of executive time 
As long as operations progress according to plans, there is no need for 

staff inquiry or interference. It is only when pronounced or prolonged 
exceptions are manifest that top management attention is needed. 

Once a policy is set and understood, corrective action should become 
automatic. It is incumbent upon top management in initiating a control 
program to provide certain bench marks for corrective action. Broadly 
speaking, these might include the following actions, either singly or in 
indicated combinations. 

1. Adjustments to reduce costs and to increase share of market. Ways 
of overcoming increased costs of material and labor must be sought con- 
stantly. Equal effort must be applied to reducing costs arising out of in- 
efficient facilities and equipment. Repair and maintenance must be 
carefully weighed along with new capital outlays against operating goals. 
The industrial engineer may be brought in to provide expert advice. 
The good manager will attempt to make performance conform to forecasts 
rather than adjust forecasts to take into account changing conditions 
which might have been anticipated. 

Sales effort must be devoted to reaching established goals despite 
changing market conditions in preference to cutting back objectives. 
Sometimes it is wiser to increase selling expenses to achieve volume 
objectives than to cut costs because sales goals have not been reached. 



396 MEASUREMENT AND CONTROL 

2. Modification of objectives and plans where necessary. Goals and 
plans for reaching them usually require some revision during the year. 
Revisions are dictated by the impact of external forces which could not be 
reasonably foreseen. Revision may be either up or down. If results are 
substantially above standard, the reasons should be thoroughly studied 
and used to establish new standards. 

3. Provision of positive motivation. If performance is to conform to 
plans, some positive push is often needed. Motivation of subordinates 
should be carefully studied and kept in adequate balance. Provision of 
stronger incentives than are necessary not only is wasteful, but tends to 
lessen their effectiveness at a later time. 

4. Reviewing the direction given subordinates. Good communication 
remains a major problem in modern business. Direction must be given 
in frames of reference used by the listener. Quite frequently, a subordi- 
nate's interpretation of words differs from that of his superior. Hence 
managers need to review frequently with subordinates what is wanted 
and how it is to be obtained. 

5. Periodic evaluation of the qualifications and training of subordinates. 
It is the manager's primary responsibility to see that each employee 
reporting to him is trained and guided to do the best job he is capable 
of doing and that each employee is put into the job that he can do best. 



CONCLUSION 

The American economic system is a profit-and-loss system. Competition 
and the increased complexity of business force modern management to put 
more emphasis on profit planning. A period of continuous profit points 
toward growth; inadequate profit is the road to oblivion. Top manage- 
ment cannot be truly effective unless it plans realistically and sees that 
profit performance conforms as closely as possible to plans. 

Evaluation and measurement show whether objectives were soundly 
conceived and if personnel was efficiently directed. Every operation, prop- 
erly evaluated, forms the basis for more successful operations in the future. 
Periodic checks help determine if corrective action or alteration of 
plans is necessary. Projection of final results provides a starting point 
for setting next year's goals. 



Edmund F. Ball 



PRESIDENT AND CHAIRMAN OF THE BOARD 
BALL BROTHERS COMPANY INCORPORATED 
MUNCIE, INDIANA 




Edmund F. Ball joined the Ball Brothers Company in ipiS. He has 
been associated with the company continuously since then— except for 
the time he spent in the army during World War II — and has held 
a variety of positions. 

Following eight years of rigorous and intensive management train- 
ing, Mr. Ball was chosen glass factories manager. In 1940, after four 
years in this capacity, he rose to his first general executive position 
when he was named vice president in charge of glass operations. 

Mr. Ball was serving in that capacity in mid-ip^i when the army 
called him to active duty as a reserve lieutenant. He served for the next 
forty-five months at various Air Corps installations throughout the 
country, in the War Department, and then overseas in the European- 
Mediterranean Theater as a staff officer with the Fifth Army. During 
part of this time, he was named aide to General Mark Clark, one of 
World War IFs best-known military commanders. 

On cessation of hostilities, Mr. Ball returned to his firm. Shortly 
thereafter, the board of directors named him executive vice president 
in charge of all activities within the company. In ip^S, he became 
president, and eight years later, in ipyS, he assumed the additional 
responsibilities of chairman of the board. As a youth, Edmund Ball 
attended the Asheville School for Boys in Asheville, North Carolina. 
He then continued his education, first at Indiana's Wabash College, 
and later on at Yale University. He holds a Ph.B. degree from Yale, 
class of 1^28. Mr. Ball serves on the board of directors of a number of 
companies including the Borg-Warner Corporation; the Merchants' 
Trust Company of Muncie, Indiana; the Muncie Aviation Corpora- 
tion; and the Tomlinson Fleet Corporation of Cleveland. 

Additionally, he serves as president of the board of trustees of Ball 
Memorial Hospital. Muncie, Indiana; as a trustee of Wabash College, 



397 



Crawjordsville, Indiana, and of the Asheville School jor Boys in Ashe- 
ville, North Carolina. 

He is a past grand commander of the Knights Templar of Indiana, 
national treasurer of that organization, treasurer of the Knights Tem- 
plar Eye Foundation, a past president of the Glass Container Manu- 
facturers' Institute, and a member of Rotary, the American Legion, 
the National Association of Manufacturers, and a number of other 
business and management groups. He belongs to the Columbia Club 
in Indianapolis, Indiana, and the Yale Club in New York City. 

In spite of a heavy business, trade, and public affairs schedule, 
Edmund Ball has found time to become an author. His semiauto- 
biographical book. Staff Officer, was published in ip^S. It recounts 
Mr. Ball's varied experiences while working closely with General Mark 
Clark in the Fifth Army. 

March, i960 



CHAPTER 18 



Top Management's Use of 
Measurements and Controls 



The measurements, evaluations, and controls that can be used by top 
management are infinite-as many and as different as the points of vie^v 
from which the results may be examined. In a free economy, the objective 
of any business is, of course, profit; but the criteria of success as to how 
much or how little, or how achieved, will vary with each particular 
situation. Governmental organizations or not-for-profit institutions have 
objectives and goals, and judgment as to success or failure in their 
achievement may be, again, as divergent as individual thought. 

The objectives and goals of any specific undertaking should be es- 
sentially the same from any point of view. There may be, however, quite 
different opinions, both inside and outside the organization, concerning 
the specific signposts that indicate that the proper courses are being 
followed and that satisfactory results are achieved. For instance, the 
stockholder expects maximum return on and growth of his investment: 
the employee wants maximum wages, security, and good working condi- 
tions; a departmental manager may strive for quite different objectives 

398 



TOP management's use of measurements and controls 399 

than top management; the banker seeks soundness and Hquidity; the 
customer demands quality, price, and service. Some measurements may 
be diametrically opposed and yet each be a valid basis on which to judge 
a result. 

The government, with its tax policies, tariffs, trade regulations, require- 
ments as to employment, labor conditions, and a myriad other checks and 
controls, injects its heavy influence. Even public opinion plays its part in 
judging the performance of a business in the community or nation— 
whether it's a good citizen, produces useful products, enjoys a reputation 
for integrity and honesty in dealings, or attracts good people to the com- 
munity. 

Top Management's Role as a Catalyst c ' r 

These are all points of view which top management must reconcile and 
evaluate as it proceeds with its delicate task of establishing balances 
between the various forces that motivate an enterprise. All these factors 
and many more must be considered as management seeks to establish 
means of measuring and evaluating its own performance and that of its 
organization. 

The perfect manager would need to be all things to all men. If it were 
within his power to produce high returns on low investment, pay high 
wages, sell his products or services at low prices, satisfy all regulatory 
governmental agencies and laws, and at the same time be a good citizen 
and a good fellow— then he would have achieved the ultimate. 

Quite obviously, he cannot do all these things. His task, therefore, 
must be that of the catalyst speeding up the process of achieving a 
proper balance between these forces. He must be the compromiser recon- 
ciling varying points of view; the wise counselor guiding his company 
toward proper goals and objectives; and the dynamic force that will 
produce results without bogging down in the morass of complicated 
detail that might make management a hopelessly floundering task. 

Increasing Complexity of Top Management's Function 

Simply stated, it is the function of management to guide and direct the 
activities of others. A very few decades ago, most companies were highly 
centralized. A few top executives managed, and major decisions were 
based on their personal judgment, experience, and knowledge accumu- 
lated over the years in building up what were essentially their own busi- 
nesses. Their standards for measuring success or failure were based on 
what, in their opinion, constituted a good or a bad performance. The 
chief executive carried his measurements in his head or in his "little black 
book." His own native shrewdness, experience, hunches, and knowledge 
of his operation gave him sufficient bench marks to judge the good from 



400 MEASUREMENT AND CONTROL 

the bad. Rules of thumb were the criteria, and most of them were good 
ones, too. 

The five brothers who founded our company back in 1885 would have 
looked with suspicion upon "cost of capital concepts," "investors' methods 
of project evaluation," ratio studies, and return-on-investment formulas. 
But they knew how to run a successful business. 

Frank C. Ball, the first president of our company, in his Memoirs, 
states the formula for success quite simply. In commenting on the sale of 
the brothers' first successful glass product— a tin-jacketed glass kerosene 
can— he said that they became very popular and displaced other types of 
oil cans and that "good quality and low prices enabled us to take a large 
part of this business." Those were all the bench marks and controls they 
needed in those days. 

Since then, however, the complexity and competitiveness of modern 
business have brought about a complete change in the concept of man- 
agement and how it should function. In the beginning of the free-enter- 
prise system in this country, a business could be built and successfully 
operated by private initiative and rugged individualism. AVe have, how- 
ever, traveled a long path from those days when an individual entrepre- 
neur could conceive, build, manage, operate his business, make the sales, 
collect the money, pay his employees, and make the decisions concerning 
his operation without too much concern for regulations, controls, and 
outside considerations such as exist today. 

Now each enterprise touches and affects numerous facets of our 
economic life. Individuals as well as organizations have become more 
interdependent upon each other. Laws have been evolved to regulate our 
economy. Governing bodies have been instituted to see that these laws 
and regulations are obeyed. Trade associations have been set up for the 
exchange of technical data and experiences that will be helpful to the 
improvement of the arts. Trade and labor unions have grown in po^\-er 
and exercise their influence over the results of management. 

The complexity of modern management has forced the head of a 
large business enterprise, just as the general of an army, to delegate re- 
sponsibilities to others to produce results. His success is determined by 
the abilities of the people under his direction. Their errors become his 
errors, and their successes his successes. The success or failure of the 
enterprise hinges upon the composite decisions of many. 

Management's functions are now more complex than they were four 
decades ago. By the same token they will be much more complicated in 
another decade or two. It would be difficult even today for five congenial 
brothers to sit down and arrive at a quick decision on an important 
matter. A few years from now, a network of management teams and 
committees could easily bog down in a morass of detail without proce- 



TOP management's use of measurements and controls 401 

dures for reaching quick decisions. It will become increasingly important 
for management to avoid a slowing down of its process as a result of these 
increased problems. "Corporate agility," as one writer has termed it, 
must be achieved to cope with the fast-moving and ever-changing face 
of the future. 



BENCH MARKS FOR TOP MANAGEMENT 

To maintain such corporate agility top management needs measure- 
ments which provide a quick and realistic picture of what is being ac- 
complished by an organization, or by an individual manager, toward the 
achievement of objectives and to assist in the evaluation of performance. 
Management needs certain bench marks, signposts, and danger signals 
which are easily and quickly discernible without reference to a great mass 
of detail. If dangers are indicated, specific detail should be called for 
and studied. For instance, a danger signal for a particular phase of our 
business might be as simple as an unfavorable report of home-canning- 
supply sales in a territory reporting excellent fruit and vegetable crops. 

Definitely, a measurement implies a standard of some sort which may 
be either favorable or critical— a comparison with something else of 
equal value or simply a basis for judgment of performance. In mathe- 
matical terms, measurement is a standard of comparison with other given 
quantities or factors or some multiple of them. 

Control implies the exercise of direction, restraint, or influence over 
an individual, an organization, or a function. The combination of 
measurement and control by top management implies the use of factors 
that are precise enough to evaluate by comparison with something else, 
and yet they must be tempered by judgment and reason so that they do 
not become merely restrictive. These measurements and controls should 
rather become exciting challenges to surpass— like beating par in golf, or 
producing a better product than a competitor. 

No standards, evaluations, or controls for top management should 
ever become so formalized and mechanized that judgment, experience, 
and the rule of reason cannot be applied even to the point of overruling 
a decision based on some predetermined standard. A quotation from a 
catalogue published in 1907 by one of the leading manufacturers of 
instruments and measuring devices would seem to sum the whole thing 
up in a rather concise statement. It reads as follows: 

Our guarantees of accuracy of our apparatus are conservative. Nothing remains 
permanent, and the best of standards are not absolute. We therefore think it 
best to allow safe factors, and it will be found that almost invariably our adjust- 
ments are much better than our guarantees. 



402 MEASUREMENT AND CONTROL 

No Standard of measurement should ever remain permanent or absolute, 
and no ratio, comparison, or formula should ever be substituted entirely 
for management judgment. 

Criteria of a Useful Bench Mark 

Each factor considered as a standard of measurement should meet two 
criteria: (i) it must assist management in making a business decision; 
and (2) it must provide for a comparison on which to base sound opinion 
or judgment. Extraneous matters or details which only tend to confuse, 
delay, or distort evaluations of performance should be avoided. 

Top management ought not to burden itself with analyzing the re- 
liability and validity of each measurement. That responsibility must be 
assumed by staff personnel. Each evaluating measurement should contain 
information which will enable top management to evaluate some or all 
of the following: 

1. Effect on short-range operations of the institution 

2. Effect on long-range plans and projections for future development 

3. Economic worth 

4. Costs and expenditures required 

5. Return on the investment 

6. Effect on customer relations 

7. Impact on public and labor relations 

8. Effect of governmental and legal influences 

There are many types of composite charts that could be developed 
and used in a general way as simple guideposts or controls for manage- 
ment. Obviously, it is not possible to set up one that is universal. 

To illustrate the point that there are many types that can be success- 
fully used and to demonstrate that this sort of treatment can be applied 
to various kinds of ventures, three quite different enterprises ^vith which 
the author has had experience are used as examples: 

1. A hospital 

2. A bank 

3. A business 

A HOSPITAL 

Some standards which may be used by the top management of hospitals 
for determining at a glance the over-all effectiveness of the institution 
are indicated in Table 18-1. Some of these standards can be calculated 
exactly (such as the autopsy rate); others have to be judged and measured 
from experience (such as medical-staff attitude). 

The standards shown are those used in a community hospital and may 
be somewhat different from those in another institution. However, en- 



TOP MANAGEMENT S USE OF MEASUREMENTS AND CONTROLS 



403 



lighted administration can quickly determine standards which should 
apply to its own institution. 

Table 18-1. Top Management's Bench Marks for a Hypothetical Community Hospital 



Factor 


Problem indicated 


Satisfactory 




Financial 






Income 


Less than budget 




Equal to or more than budget 


Expenses 


More than budget 

Less than one month's 




Equal to or less than budget 
One month's expenses 


Cash position 


ex- 




penses; unable to take dis- 






counts 






Cost per patient day .... 


Above national average 




Average ; 


Percentage of collections 


Less than 93% 




Over 95% '' 


Accounts payable 


Unable to take discounts 
Performance 




Takes all discounts 


Per cent bed occupancy 








(in any department) . . 


Less than 75^0 or over 100% 


80-95% _ 


Institutional deaths .... 


Above 4% 




Below 3.5% 


Infections 


Above 2% 




Below 2% 


Autopsies 


Below 30%, 




Above 30% ■ 


Consultations 


Below 15% 




Above 15% 


Complications 


Above 4%, 




Below 4% 


Caesarians 


Above 4% of births 




Below 4% of births 


Tubal ligations 


Above 2% of births 




Below 2% of births 


Mortality rate (births) . . 


Above 2% of births 




Below 2% of births 


Medical-staff meeting 








attendance 


Below 75% 




Above 75% 


Board of directors meet- 








ing attendance 


Below 75% 




Above 75% 


Adequate nursing service 


Below 3.0 R.N. hours 


per 


Above 3.0 R.N. hours per 




patient 




patient 



Public opinion 

Response to drive and solicitations 

Support from community and service clubs 

Auxiliary activities 

Employee attitude 

Medical-staff attitude, opinions, cooperation 

Letters from patients, complimentary, critical 

Patient waiting list 



The chart presents bench marks under three categories— financial, per- 
formance, and public opinion. A hospital which is financially solvent and 
which measures up to the standard of performance usually enjoys good 
public relations. Certainly the hospital cannot expect a good public 
opinion unless performance is up to standard, and performance can 
certainly be affected by lack of funds. Thus the foundation of good 
hospital administration, as in any other business, is financial solvency. 



404 MEASUREMENT AND CONTROL 

From this base, performance can be attained and public opinion solidified 
in support of the institution. 



A BANK 

To be significant, ratio comparisons in commercial banking, as in all 
types of operations, must be evaluated in connection with the specific 
institution under scrutiny. Our medium-sized county-seat institutions may 
have quite a different set of standards from big city banking, and yet 
both may be equally sound. For example, a desirable liquidity factor 
(cash, due from banks and government bonds) would vary according to 
(i) the proportion of demand and time deposits in the bank, and (2) 
whether its deposit liabilities included a large amount of correspondent 
bank balances (due to banks) or other demand deposits of a volatile 
nature. 

It is obvious that the loan ratios determine the proportion of assets 
carried in the bond accounts. The amounts carried in loans and discounts, 
mortgage loans, consumer credit, and the like, will depend on local 
demand, policy of management, competition, and in the case of mortgage 
loans, the proportion of time to demand deposits in the liabilities. Simi- 
larly, the spread of maturities in the bond accounts is influenced bv the 
differences in liabilities mentioned above, which is also true to a lesser 
extent of the diversification of securities carried. 

The ratio of fixed assets to invested capital is another time-honored 
yardstick (the former should not, it is said, exceed the latter). The earn- 
ings and dividend record of the bank is, of course, highly important, but 
here again, unless the data are homogeneous, meaningful comparisons 
cannot be made. 

Other significant ratios are not "spelled out" here because of the con- 
flict in current opinion about them. The ratio of invested capital to total 
deposit liabilities is one example. A generation ago the rule of thumb 
was a ratio of one to ten— a measure no longer valid. It is now generally 
agreed that there is no single factor that adequately gives a relation to 
deposit liabilities. 

The above remarks apply mainly to balance-sheet items. The operating 
statement— earnings and expenses— is subject to similarly brief but effec- 
tive scrutiny. 

Again, the setup of the particular bank must be kept in mind. A bank 
with a large trust department will have a large salary account and should 
show correspondingly large income from fees. One whose business is 
predominantly commercial in character (heavily weighted with demand 
deposits) will also have a large salary outgo, while the institution with 
large time deposits will spend less for salaries but more in interest paid. 



TOP management's use of measurements and controls 



405 



Growth Indicators 

Trends are, of course, important and should not be overlooked as 
valuable measuring devices. The number of commercial, savings, and 
trust accounts should be frequently checked and compared with past 
records and competing institutions, as well as with area and national 
trends. The total number of customers is another important criterion 
and should show favorable trends in relation to community and area 
growth of population and potentials. 

A bank, because it is an institution touching many facets of a com- 
munity, should be interested in— and see that its personnel participate 
in— all sorts of worthwhile community activities, in order to broaden 
contacts and to improve its public relations. These factors can easily be 
charted, and records kept, but generally it probably will be sufficient 
simply to make periodic reviews of these evaluating points. 

Above all, the true measurement of the management will be reflected 
in the quality of the assets, the control of expenses, the minimization of 
losses, and a robust earnings and dividend record. 

Table 18-2 lists some important indicators of the soundness of a bank's 
investment policies. j 

Table 18-2. Top Management's Bench Marks for a Hypothetical Bank 
(Financial investment policy) 



Factor 



Cash, due from banks and 
government bonds, as a 
per cent of deposits .... 

Loans, as a per cent of de- 
posits 

Loans to invested capital, 

ratio 

Bond maturities: 

5 years or less 

6 years to 10 years 

10 years and over 

Bond diversification: 

U.S. government obliga- 
tions 

Municipal, state, county . . 
Others 

Earnings: 

On invested capital 

Paid-in dividends 

Retained earnings 



Problem indicated 



Below 40%, above 65% 
Below 25%, above 60% 
Above 7 to 1 



Below 50% 
Above 40% 
Above 20% 



Below 65% 
Above 35% 
Above 15% 



Below 107o after taxes 
Above 50% earnings 
Below 40% 



Satisfactory 



50 to 60% 
30 to 50% 
5 or 6 to I 



60% 
30% 
10% 



70 to 75% 

20% 

5 to 10% 



15% 

50% of earnings 

50% 



406 MEASUREMENT AND CONTROL 



A BUSINESS 

For the purpose of easy treatment, some of the controls, measurements, 
or bench marks which might be used by the top management of a 
business enterprise are discussed under the following headings: 

1. Financial 

2. Marketing 

3. Industrial relations 

4. Public relations 

5. Governmental relations 

The bench marks discussed under each of these headings do not, of 
course, have universal application. No one set of measurements and 
controls will cover the requirements for every business enterprise. 
However, through the use of carefully selected bench marks in each of 
these areas— bench marks tailored to the requirements of the particular 
firm— top management will be much better prepared to make the de- 
cisions required to keep a company on a successful and profitable path. 

Financial Bench Marks 

The foundation of all financial planning is the five-year forecast. This 
forecast of sales, earnings, investments, and cash flows— although difficult 
to make and frequently inaccurate— indicates to top management the 
direction in which the firm is heading. If the projected results are not 
satisfactory, now is the time to develop a new program, not five years 
hence. Against this kind of background, the annual forecast and other 
financial bench marks take on real meaning. 

Return on Investment. Both the forecast and actual operations must be 
compared against a financial par. The most commonly used financial tool 
to measure a company's progress is its return on investment, i.e., net 
profits after taxes to equity or net worth. This retur